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has to be the combining of Experience Mods for common majority ownership. It never fails to work against you, but very rarely helps you.
Credit scoring model for pricing.
It can be viewed as a necessary evil. About 20 years ago, there was an epidemic of businesses with horrible loss experience simply creating new corporations and getting new mods of 1.00 even though nothing had changed as far as the ownerhip's lack of loss control.
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I've probably shared my personal experience with this here. My homeowners renewed with a $1,000 premium increase based on a bad insurance score. Turned out they had the wrong information...they used the score for a couple with the same last name that lived 1,500 miles from us.
Two years later, we got a $700 increase, again citing a deficient insurance score. Our credit is impeccable. When I inquired, they cited three "reason codes" that were very easy to refute. I went all the way to the carrier's VP of underwriting to get it fixed and his response was the insurance score reasoning was incorrect and the increase was still warranted based on a statewide rate increase granted by the state DOI. Having contacts at the DOI, I found out they had not had a rate filing approved in at least 3 years, so he lied. I moved my account at that point.
There is a lot of credible evidence that insurance scoring is often based on erroneous or misapplied credit information (credit reports are notoriously inaccurate), is too rigid and sometimes unfairly applied, and allegedly too often based on correlation and not cause-and-effect. But it's cheap and easy. Credit reports don't have salaries, benefits, or take vacation or sick leave like underwriters.
Expect it to get much, much worse with the growing reliance on "big data." Just recently an agent friend had an account with a large premium increase and the underwriter could not tell him why or how to fix it. They said that their rating system had dozens of variables and they had no practical way to determine how these factors combined to produce the final premium. These types of "black box" rating algorithms make it impossible for insureds to manage their risks and insurance, not to mention making it impossible for regulators to determine if rates/premiums meet statutory requirements for being adequate but not excessive nor unfairly discriminatory.
"I am all for using any piece of information for underwriting it if can be shown to affect claims. And I have heard a number of times that insurance score is a great predictor of claims, however I have never seen anyone show evidence to support this."
Someone once said something like "It's better to risk saving 10 guilty men than condemning one innocent man." Even if it was predictive and causal, there are so many opportunities for error, there should be concern whether it's appropriate. We should also question WHY/HOW it works as a predictive factor...as you say, no one really knows and all I've ever seen are suppositions. No question it serves the interests of insurers, but does it justly serve the interests of insureds?
I have written thousands of personal lines accounts.
Bad credit is 100% indicate of claims. I've seen it every single day for the last 12 years. It's burned in my head through repetition.
bad credit ------> lapses -----> claims -------> lower limits