Credit Experience Report
Missouri 2003 Credit Experience Report
The National Association of Insurance Commissioners (NAIC) — the trade group for all state and territorial insurance directors — provides the states with an annual report detailing the experience of credit insurance products.
2003 report for Missouri (
191Kb)
Consumers often buy credit insurance when they buy major appliances and other products on installment. The credit insurance policies protect the lender's interest or an individual's credit rating because of perils such as buyer's involuntary unemployment, illness, disability and/or death. In such events, these credit insurance policies will typically make payments on outstanding balances for a specified time period. Such coverages include:
Credit life -- Will typically pay off an outstanding loan balance in cases of death. The lender is the beneficiary of these types of policies.
Credit disability -- Usually covers minimum payment of outstanding balances when a debtor suffers from a disability that results in an interruption of income. This product is designed to protect an individual's credit rating and will most likely not pay off the entire outstanding balance because of time limits on coverage.
Credit unemployment -- Covers interruption of income because of involuntary unemployment. Generally makes the minimum monthly payment for a specified time period.
Credit property: Cancels outstanding debt if the property purchased on credit is destroyed by specific named perils, such as theft or fire.
Often, coverages are bundled and sold as packages.
Pricing of Credit Insurance Products
Missouri, like many states, has enacted statutory limits on the price that may be charged for credit insurance.
This heightened regulatory oversight has been justified, in part, by “reverse competition“ in credit insurance markets — the result of market forces that increase the commissions of retailers selling the product and the costs for buyers, who may have no other source for the insurance. The primary business transaction often consists of distribution arrangements between insurers and retailers (lenders). Retailers typically purchase a group policy and then issue certificates to individual buyers who purchase goods on credit. Insurers compete for business by offering more to retailers, such as higher commissions and other transaction benefits that actually are paid by the final consumer (borrower). Insurers' competition for retailers works to increase the price of credit insurance coverage -- the opposite of what economists expect from competitive markets.
In Missouri, therefore, the price of coverage is governed by prima facie rates published in RSMO 385. Insurance sold at the prima facie rate is presumed reasonable in any departmental review. Insurers may charge more than the prima facie rate, but to do so they are required to provide additional actuarial or statistical data to justify the higher prices. Many insurers charge the prima facie rate.
The NAIC report provides tables with a company-by-company breakdown of premium and losses for the broad categories of credit life, accident and health. Data is presented for:
Premium Earned: the actual premium earned on credit business for 2001, 2002, and 2003.
Earned Premium at Prima Facie Rates: what the price of coverage would have been had the company adopted prima facie rates during the years 2001, 2002, 2003.
% of Earned Premium Over or Under Earned Premiums at Prima Facie Rates: The difference between the actual premium earned and the hypothetical premium earned if the company used prima facie rates. The column shows whether actual premium charged deviates significantly upward (or downward) from the statutory rates.
Annual Incurred Claims (Losses): The dollar amount of claims that were incurred by a company in 2001, 2002 and 2003.
Loss Ratio: The ratio of losses to premiums. Loss ratios afford a convenient measure of the reasonableness of insurance prices. A loss ratio of 50 percent would indicate that consumers receive 50 cents back in claim payments for every dollar spent for coverage. Lower loss ratios indicate lower returns to consumers; higher loss ratio indicate a greater return to consumers for each dollar of coverage.
Loss Ratio at Prima Facie Rates: What the loss ratio would have been if insurers had adopted prima facie rates.