NAIC Casualty and Statistical Task Force (CASTF) Issues Exposure Draft for Comment on Unknown Risk Characteristics

The National Association of Insurance Commissioners’ (NAIC) Casualty and Statistical Task Force (CASTF) has been discussing how insurers handle missing or unknown rating characteristics when developing premium for a policy.  CASTF is seeking feedback on this issue from interested parties.  Specifically, they are asking the following questions:

• Does an insurer have a responsibility to ask the consumer about rating characteristics it was unable to collect another way? What risks or challenges might be involved with asking a consumer or agent to supply missing data?
• Does the insurer have a responsibility to notify the consumer when a risk charactistic is unknown?
• How do the Actuarial Standards of Practice apply when insurers are dealing with unknown rating characteristics in calculating an insured’s premium?
• What methods are appropriate for determining factors for ”unknown” characteristics? Does this differ based on whether or not the data is missing at random?
• If the data is frequently missing for a variable, how should the insurer decide whether or not to keep that variable in the rating algorithm?  Are there thresholds that should apply – e.g., if data is missing for more than X% of consumers, that variable should not be used?
• How should insurers think about the concept of fairness when using variables for which information is missing for some consumers?

Background and more information can be found under Exposure Drafts on the CASTF Website

The Task Force ask for comments be sent to Kris DeFrain kdefrain@naic.org by Monday, October 20.