
In the ever-evolving landscape of insurance underwriting and pricing, having comprehensive data is imperative for insurers looking to maintain profitability — while providing fair, accurate and competitive rates to their customers. For over two decades, underwriters and actuaries have used consumer credit scores as a predictive tool to improve the accuracy of risk assessment and better estimate the costs of covering home and auto insurance losses in Canada. In recent years, we’ve seen even broader adoption of credit-based information as carriers look to improve their risk-based pricing across provinces and various lines of business.
As the industry has adapted to these changes, credit scoring and the data that underpins it have also progressed. One example is the CreditVision® Insurance Risk Score, a credit-based insurance score that denotes a move away from traditional financial delinquency scores through targeting insurance claim frequency. In this blog, we'll explore this new solution and its benefits for insurers, consumer impacts and competitive advantage.
As mentioned, today’s insurance market reflects a growing need for reliable data to provide fair and accurate rates to consumers. Traditionally, insurance pricing models often relied on delinquency scores — which reflect an individual's credit history — as a responsibility factor. While these are informative and statistically sound, a credit-based insurance score provides a more robust picture of an individual's risk profile for insurance purposes. It achieves this by focusing on an insurance outcome as the target variable, creating a dynamic score that incorporates a broader range of factors1 related to insurance risk. Credit-based insurance scores consider additional data points, combining point-in-time data and leveraging a diverse set of trended variables. This enables carriers to tailor premiums and offer more individualized rates that more accurately reflect consumers’ unique circumstances.
A credit-based score is a powerful tool in helping attract consumers by offering more accurate prices across various distribution channels. It has seen widespread adoption in property and casualty insurance due to its ease of integration into pricing models. Another contributing factor of this increased acceptance is the capability to enable consumers to access and understand their scores, and explore educational materials on the main factors influencing them — which helps people better manage their overall credit health. In a recent TransUnion Consumer Pulse Study, we surveyed consumers to understand their main drivers for insurance shopping. Since Q1 2023, we’ve noted a 7% increase in consumers prioritizing price as the primary factor when shopping for insurance (table below). Moreover, we’ve seen close to 38% of consumers planning to shop in the next three months.
Although practices have been in place in the United States for over 20 years, the adoption of credit- based insurance scores holds great potential for Canadian insurers — especially given the increased awareness of the need to provide consumers the most fair and accurate prices. To that end, using credit-based insurance scores helps in doing that, in addition to enhancing transparency. That’s because considering a broader range of risk factors targeted toward insurance losses enables insurers to offer more personalized premiums that better reflect individuals’ risk profiles. In the same Consumer Pulse Study, TransUnion gauged consumer sentiment around credit information as it relates to auto insurance. The findings revealed consumers were more likely to give their consent to allow access to their credit information if there was a possibility of obtaining a discount.
To illustrate the improved pricing segmentation a credit-based insurance score can deliver, TransUnion conducted a study on an insurer’s portfolio to understand its impact. As outlined in the graph below, there was improved performance over and above the TransUnion standard delinquency score, highlighting the value of providing a more personalized price on the lowest and highest risk segments. This type of improved segmentation enhances pricing fairness by allowing insurers to better align price to risk, ultimately enabling long-term profitability through the attraction and retention of low-risk customers, in addition to improving pricing accuracy for customers who have more costly losses on average.
Credit-based insurance scores were designed to remain consistent with the attributes used in traditional TransUnion delinquency scores — but have improved the weighting of these variables to bolster insurance risk outcome predictions. Moreover, insurers that embrace insurance-based credit scores may distinguish themselves as industry leaders, helping drive customer satisfaction and loyalty in an increasingly competitive marketplace.
In conclusion, the adoption of credit-based insurance scores could represent a transformative shift in insurance pricing and underwriting practices. By incorporating scores built to predict insurance loss outcomes, insurers can unlock significant value and help promote profitability, fairness and competitive advantage. At TransUnion, we’re committed to helping the industry and consumers develop mutual trust, as well as an understanding that credit data is a predictive tool which enables them to transact with confidence — facilitating more positive outcomes for all stakeholders. In the end, remaining agile and embracing innovation are essential to thriving in the rapidly changing insurance landscape.
By leveraging TransUnion’s global expertise and local Canadian experience in its development, the CreditVision Insurance Risk Score helps carriers of every size make more informed decisions about whom they serve. This score helps you provide the right coverage at the right price, leading to improved loss ratios and fairer prices for your insurance portfolio. Get in touch with us to learn how CreditVision Insurance Risk Score (CVIRS) can have a positive impact on your insurance business.
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