Counterpoint: Use All Available Data in Underwriting
The case can be made that when underwriting fails, it's a result of a failure to use all available data.
The analysis of seemingly unrelated factors can many times point an underwriter in the right direction.
Nowhere is this more true than in the current situation facing workers' compensation underwriters. Those who insure the risk are pounding their heads against the wall, facing combined ratios approaching 120, in many cases.
But some would restrict the ability of underwriters to gauge this risk, thinking they are arguing in defense of civil liberties. A patient's mental health history or whether their father was a heavy drinker has no bearing on the patient's loss history or the ability to predict a catastrophic workers' compensation claim, they say.
If a patient has genetic addictive tendencies and suffers from depression, however, those are factors that could influence the outcome of an injury claim. Using those red flags to stage an intervention to prevent that patient from abusing opioids is something that will add to that patient's quality of life, not subtract from their civil rights.
The use of credit scores in personal lines underwriting is another area that has generated controversy. Opponents say credit scores have no relation to whether someone can operate or maintain a vehicle safely. Really?
Is it that much of a stretch to conclude that someone who can't bring order to their finances will lack order in other parts of their life? To me, that sort of thinking collides with common sense.
A failure to use all available data at this point in time seems particularly short-sighted. At no other time have we had the analytic tools that we have now. These tools are powerful, but to run optimally they need good data, and lots of it.
I think it's time we drop the collective, foolish pride that stops us from sharing important information on such topics as family obesity, mental health or financial ineptitude and face those issues together as a society. People already post more on Facebook than I want to know anyway.
Insurance will always be a modifier of behavior, but it can't modify behavior with one hand tied behind its back, deprived of useful, relevant data.
By Dan Reynolds, editor-in-chief, Risk & Insurance®
July 22, 2013
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