Gary Josephson, principal and consulting actuary with Milliman, Inc., discussed the comment letter and testimony provided by the Academy at an NAIC hearing held in April.
told the actuaries he would demonstrate that the economy didn’t have an adverse effect on credit-based insurance scores.
Josephson explained that the Academy of American Actuaries’ paper addressed the group’s role and provided a definition of credit-based insurance scores, along with the actuarial framework for their use in rating and risk classification. The paper also discussed how insurers are using the scores and how the economic situation may have impacted premiums relative to scores. “By bringing strong credibility the Academy is seeking to assist the NAIC in determining the effect credit-based insurance scores have on insurance and offer assistance on follow-up research,” he added.
“Insurance models use a mixture of attributes to rank loss propensity,” Babel explained, “These attributes are items such as age of a credit account, the number of credit inquiries, credit utilization, payment behavior and derogatory public records. Most insurance models use these attributes, which have been proven to correlate to the likelihood that an insurance claim will be filed.”
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He said that examining the basics of credit models shows that scores for insurance models are developed based on historical insurance losses, while banking or financial models are developed using bad debt and delin-quencies. Insurance scores rank order policies based on the potential for an insurance loss. Financial scores rank order credit problems, identifying which policies have a better chance to create a bad debt or delinquency.
LexisNexis data shows that the average credit account age increased from 2007 to 2009 because of credit tightening, creating better credit-based insurance scores that resulted in lower risk and lower insurance premiums. In addition, LexisNexis data shows average credit inquires significantly decreased between 2007 and 2009.
ALEXANDRIA, VA. — The Independent Insurance Agents & Brokers of America (IIABA) said that the Big “I” Virtual University will present a webinar on ”De-Mystifying Agency Valuation” on Aug. 5 from 1: 30 p.m. to 3 p.m.
“The NAIC committee on the issue is still active and exploring it,” Josephson said. “And while vendors of credit-based insurance scores are now subject to more regulation, the issue continues to be a hot topic and public advocates continue to be disappointed that credit is still being used.”
MORRISON MAHONEY LLP
Providing an assessment and a view
on consumer credit trends, Richard
Babel, senior director of analytics
for LexisNexis Insurance Solutions,
“We believe this is also a result of
credit tightening, leading to better
scores, lower risk and lower premiums
for insurance consumers,” said Ba-
bel. “While these attributes improved
scores we did not see a significant
change in credit utilization, payment
behavior or derogatory public records,
which would have worsened scores.”
“This webinar will address how valua-
tions are done and dismiss the ‘voodoo’
of multiples,” said Madelyn Flannagan,
IIABA vice president for education and
research. “Al Diamond and the Big
‘I’ Virtual University faculty have dis-
sected this important topic that often
causes confusion in the independent
agency system and prepared a webinar
that will clarify many of the areas they
are often asked to explain.”
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BUSINESS PRACTICE GROUP
For over 40 years, specializing in providing a complete range of corporate and other legal services specifically for the insurance community.
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250 Summer Street
Boston, MA 02210
(617) 439-7565
The webinar will also address why different valuers (internal owners, perpetuators, merger candidates, buyers, banks) can (and will) establish different values for the same agency. Additionally, the presentation will show participants how to estimate their own agency’s value and how to maximize values or cast realistic values on other agencies as they apply to them.
“Programs, such as this webinar, are part of the Big ‘I’s’ continuing commitment to provide the information and best practices to agencies nationwide to not only assist them in their growth and perpetuation planning, but also increase the value of independent agency system to carriers and consumers,” said Robert A. Rusbuldt, IIABA president and chief executive officer.
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More information is available by visiting www.iiaba.net/vu.
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