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Private Passenger Automobile Insurance Coverages: An Actuarial Study of the Frequency and Cost of Claims for the State of Michigan
Released July 2004

EPIC Consulting, LLC analyzed automobile insurance data on behalf of the Insurance Institute of Michigan and the Michigan Insurance Coalition.  The participating companies write over 70% of the market in the State of Michigan.  Seven major coverages were included  in the study.  In addition, nine perils, or cause of loss, were reviewed for Comprehensive coverage, including Fire, Wind/Hail, Vandalism, Total Theft, Partial Theft, Glass, Flood/Water, Animal Collision and All Other.

We found that the nature (i.e., claim frequencies and claim severities) of the private passenger insurance losses is significantly different for each of the seven auto coverages analyzed in this study.  The claim losses vary significantly by geographical area within Michigan and these geographical variations are different for each of the seven coverages. As a general rule, geographical areas of high claim frequencies for one coverage are not areas of high claim frequencies for all coverages. Generally, areas of high claim severities for one coverage are not high cost areas for all coverages.

Homeowners Insurance Coverages: An Actuarial Study of the Frequency and Cost of Claims for the State of Michigan
Released June 25, 2004

EPIC Consulting, LLC analyzed homeowners insurance data on behalf of the Insurance Institute of Michigan and the Michigan Insurance Coalition.  The participating companies write over 60% of the market in the State of Michigan.  Four policy forms were included  in the study - residential owners, tenants, condominium owners and mobile homeowners.  Six perils, or cause of loss, were reviewed, including Fire/Lightning, Wind/Hail, Water/Freezing, Theft, Liability/Medical and Vandalism/All Other.

We found that the nature of homeowners insurance losses is significantly different for each of the policy forms, and that the perils have significantly different impact on the losses for those forms.

The claims and loss costs vary significantly by geographical areas within Michigan and these geographical variations are different for each of the four coverage forms, and for each of the six perils.

Critique of Missouri Department of Insurance Study on Credit-Based Insurance Scores
Released February 26, 2004

Our review of “Insurance-Based Credit Scores: Impact on Minority and Low-Income Populations in Missouri” found misleading presentation of results, and insinuations not supported by the study’s analysis. There is nothing in the study to support its implications that credit-based insurance scores will negatively impact coverage availability and affordability in certain areas of Missouri.

Credit-Based Insurance Score Study
Released June 21, 2003

In the largest and most comprehensive study ever undertaken on the connection between credit history and insurance risk, a team of researchers has found that a consumer’s credit-based insurance score is unquestionably correlated to that consumer’s propensity for auto insurance loss. Even more significantly, the study found that insurance scores are consistently among the most important rating variables used by insurers today. Results of the study were presented June 21, 2003 to the National Association of Insurance Commissioners (NAIC) at the group’s summer meeting in New York.

The study, conducted by EPIC Consulting, LLC principals on behalf of the property-casualty insurance industry’s four national trade associations, was based on a countrywide sample of nearly 2.7 million auto insurance policies. By contrast, a recent study by University of Texas researchers examined records equivalent to approximately 150,000 policies in Texas only. Results of the EPIC study are consistent across the country, from state to state and region to region, the actuaries found.

Disparate Impact CAS E-Forum
Released February 2009

Historic actuarial literature, general insurance literature, and legislative histories reveal “unfairly discriminatory rates” to be a cost-based concept. A rate structure is unfairly discriminatory if the insurance premium differences between insureds do not reasonably correspond to differences in expected insurance costs. More recently a new rate concept has arisen in some court cases which is referred to as “disparate impact” (or “adverse impact”). Disparate impact has nothing to do with underlying insurance costs and is solely based on the disproportionate impact of the insurance rate structure on the insurance premiums paid by protected minority classes defined by race, color, religion, sex, or national origin. It would likely be a rare instance where the rate standard of unfairly discriminatory and the concept of disparate impact could be applied simultaneously to a risk classification plan without conflict. It is the author’s opinion that if the standard of disparate impact eventually prevails over the historical rate standard of unfairly discriminatory, then accurate risk assessment will be destroyed, adverse selection will be widespread in the insurance marketplace, and coverage availability will suffer.

 
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