Editorial: “Measurement Began Our Might….”

When poet William Butler Yeats wrote these words, he was not thinking of insurance underwriting standards for sure.

But his line does apply to the essence of the stability and viability of insuring, especially in the face of increasingly intrusive concepts from governments turned activists and activists who’d love to be the government.

A proposal floated recently in New York that would prohibit insurers from using an individual’s occupational status or educational level as factors in setting rates is just such an action. In other words, insurers’ underwriting standards—which may include credit scores, driving records, type of car, miles driven each year, gender, age, and other factors—would not be able to include these two elements that may be among the insurer’s chosen benchmarks for issuance and pricing of policies.

Problem is, by nature all pricing based upon experience and qualification IS discretionary, based upon actuarial science, not societal engineering…and should be. There is plenty of competition, for example, for auto and the pricing varies in many ways. But the discretion exercised is not based upon race or any unlawful discrimination. Think life insurance. There are indicators in insurability that derive from education level, smoking, weight, occupation, and the like. Is it not rational to write a race car driver differently from a dry cleaner? Why do regulators and elected officials NOT trust anyone to use standards that suit the science? Insurance companies are permitted to use factors that are predictive of loss and do so to limit exposure. One’s education and occupation have been correlated with risk. It is good actuarial science. These factors heretofore were approved for use by state regulators.

The NYIA points out, “Never before in history has the price of auto insurance been more transparent. You can get a multitude of quotes literally within minutes—either through an agent or by contacting a company directly. There are more than 60 insurance companies writing auto insurance in New York vying for your business. These companies compete on price and underwriting. The state’s insurance market is vibrant and delivers a great deal of choice to consumers. New York residents benefit from choice. Companies offer a wide range of options that address the varying needs of consumers. Limiting underwriting factors can penalize drivers and drive up the cost of insurance for everyone. Other states, specifically New Jersey and Maryland, have already conducted extensive analysis of the use of education and occupation in determining risk and concluded that eliminating specific underwriting factors would only result in increased rates for drivers.”

We thoroughly agree and call upon regulators and elected officials to help create a stronger, more competitive insuring environment. Intuition on the underwriter’s behalf is an outmoded tool; sound, transparent actuarial science has replaced it.

Measurement is our might.