Providing information about credit-based insurance scores and their benefits increases consumer acceptance and support for their use, according to results of a national survey released by TransUnion.
The findings were revealed in conjunction with the start of the 2013 TransUnion Insurance Summit, where insurance executives are meeting to learn about trends in the industry.
Key findings from the TransUnion survey include:
· Overwhelmingly, respondents agreed that people who show responsibility in managing their money are likely to be more responsible drivers and homeowners. Three out of four respondents (76%) said they agreed that responsible money management was an indicator of responsibility in other areas.
· The majority of respondents believe their premiums do not accurately reflect their true risk. Fifty-nine percent (59%) of respondents said they believed their auto insurance premiums would go down if their insurers knew what kind of drivers they really are.
· Generally, respondents believe insurance companies should be able to use information to set prices if that information accurately predicts which drivers are more likely to file claims, although support was stronger for using insurance scores to lower premiums for lower-risk drivers than increasing premiums for high-risk drivers.
A majority of respondents (53%) agreed that insurers should be able to use insurance scores to determine premiums in cases where low-risk drivers will be charged less.
More respondents agreed (44%) than disagreed (23%) that insurance scores should be used to charge higher premiums to higher risk drivers. In both cases, less than a quarter of respondents explicitly disagreed with the use of insurance scores.
“The question of whether or not credit-based insurance scores work is closed,” said Mark McElroy, executive vice president of TransUnion’s insurance business unit. “The evidence shows they are strong predictors of loss and help insurers provide more accurate pricing and more competitive rates. While the value is clear to insurers, a question is sometimes raised about consumer acceptance. This research shows that consumers understand and appreciate the value of a correlated but non-causal factor, like insurance scores, if they are informed about the process and benefits.”
For more than 10 years, personal property and casualty insurers have found consumer credit information to assist in accurately predicting insurance risk.
By using credit-based risk models designed specifically to predict loss, insurance carriers can better determine and price insurance risks – allocating discounts to individuals who will have lower risk and applying surcharges to those who present greater risk, where permissible under state law and regulations.
But, education is an important component of understanding and acceptance of the practice among policyholders.
In the absence of information about credit-based insurance scores, a narrow majority of respondents (52%) disagreed that insurers should be allowed to use credit-based insurance scores to determine whether to offer policies and how much to charge for premiums.
Respondents were then given a series of facts about credit data use in determining insurance premiums and policies, including:•
“When credit-based information is used to help determine auto insurance rates, more than three customers pay less for every one customer who must pay more.”•
“Insurance companies only consider information about how someone manages their credit; not how much money or income they have. Income is not part of the credit information an insurance company uses.”
After being informed of these facts about insurance scores, the number of respondents who agreed with the practice increased. Among those who agreed, the proportion of respondents rose from 23% to 38% – a 65% relative increase.
Similarly, the proportion of respondents who disagreed declined from 52% to 34% – a relative decrease of 34%.“In order for carriers to accurately determine credit-based insurance risk scores, it is imperative to have a solution that leverages not only indicative insurance-related information, but can also effectively marry together consumer credit behavior,” added McElroy.