US insurers told use of external data in price opt. models will be subject to detailed regulatory scrutiny http://ow.ly/Vn0c4 p74
Potential Questions for Regulators to Ask Regarding the Use of Models in P&C Rate Filings
Insurers might use a model in the development of proposed rates and rating factors. The Task Force offers some potential questions a regulator could ask regarding the use of models in rate proposals.
Questions may include, but not be limited by, the following:
1. Please provide a high-level description of the workings of the model that was used to select rates and rating factors that differ from the indicated.
2. What is the purpose of the model? What does the model seek to maximize or minimize (e.g. underwriting profit, retention, other) and explain.
3. How were the input variables for your model selected?
a. What is the support for the model variables, including the predictive values and error statistics for the model variables?
b. Are the parameters loss related, expense related, or related to the risk in some other way?
4. Which of the input variables are internal (customer-provided or deduced from customer-provided information) or external?
a. Identify whether each input variable is used in your rating plan.
b. For each external variable, please identify:
i. The owner or vendor of the data (e.g. Department of Motor Vehicles).
ii. Which variables are subject to the requirements of the federal Fair
Credit Reporting Act.
iii. How you ensure that the data are complete and accurate.
iv. The framework, if any, which provides consumers a means of correcting errors in the data pertaining to them.
Model Constraints & Output
5. What level of granularity is your model output (e.g. the class plan level, individual rating factors, or some other level such as household or demographic segment that is different than the rating plan)?
6. What are the limits (or constraints) for the selected rating plan factors, if any?
7. How do the modeled values compare to the company experience?
Note: Regulators should evaluate the particular filing and associated costs to insurers to determine the extent of questioning needed. Regulators should also consider the potential proprietary nature of modeling information and grant confidentiality as appropriate and if allowed under state law.