CAS Exam 6C Spring 2016, Question 3
Study guide: Exam 6C
A Canadian auto insurance regulator in a highly competitive jurisdiction is considering a proposal by a consortium of insurance companies and dental practitioners to use a driver's number of dental visits in the past 12 months as an automobile insurance rating variable. The consortium has conducted a multivariate statistical analysis of empirical claims data to justify their proposal. This analysis found the following statistically significant result: each additional visit to the dentist in the past 12 months lowers the expected automobile insurance claims of the driver by 20%, all else equal.
The regulator has recently heard the testimony of Jeff Kucera at the NAIC Public Hearing of Credit-Based Insurance Scores about the use of credit-based insurance scores in rating. The regulator works closely with the NAIC and would like to ensure that number of dental visits in the past 12 months is evaluated relative to the arguments presented in this testimony.
Part a (0.5 points)
Provide support in favour of using the number of dental visits in the past 12 months as a fair and valid automobile insurance rating criterion.
Part b (1 point)
The regulator elects to approve this rating variable. Five years later, a new study recognizes that a gradual increase in dental fees has led to a 10% overall reduction in annual dental visits across the driving population. Fully defend the regulator's decision to maintain number of dental visits in the past 12 months as an approved rating variable in light of this new study.
Part c (0.5 points)
The privacy commissioner rules that number of dental visits in the past 12 months constitutes personal information under the privacy laws of the jurisdiction and requires informed customer consent to be used in rating and underwriting. Identify two elements that should be included in the consent request to the customer.
Answer this question and see the worked solution
Concepts tested
- Rating Variable
- Risk Classification Restrictions
- Credit-Based Insurance Scoring
- Unfair Discrimination