The most recent data from TransUnion finds that its proprietary Insurance Risk Index continues to drift lower indicating low insurance risk among U.S. consumers. TransUnion's Insurance Risk Index for Q4 2010 stands at 99.13, three basis points lower than Q3 2010 and 18 basis points or 0.2 percent lower than Q4 2009. Unlike previous quarters over the past two years when the vast majority of states experienced a decrease in the Insurance Risk Index, results for Q4 2010 are mixed with half of the states experiencing an increase in their risk index.
Developed as a risk barometer specifically for the insurance industry, the Insurance Risk Index is designed to show the relative expected loss ratio for market segments throughout the country. The key factors in the Insurance Risk Index are TransUnion's insurance risk models, which are influenced by the length and stability of responsible credit performance. Benchmarked to the U.S. national average of 100 as of March 31, 2001, the Insurance Risk Index facilitates comparisons across geographies and demographic segments. For example, a state with an index of 110 is 10 percent riskier than a state with an index of 100.
TransUnion's Insurance Risk Index -- Statistics
Year over year, the Insurance Risk Index is now 0.2 percent lower than it was as of the end of the fourth quarter in 2009 and is slightly less than the Insurance Risk Index observed during the fourth quarter of 2008.
Montana continues to rank as the riskiest state with an index of 109.03 followed by Washington (104.85), Mississippi (102.75), Arkansas (101.59) and Texas (101.48). States demonstrating the least risk from an insurance risk perspective continue to be Alaska (94.35), Minnesota (95.13), Massachusetts (95.41), Vermont (96.02) and Hawaii (96.09).
"Over the last two years, consumers have made concerted efforts to pay their credit obligations on time and reduce their installment debt," said Chet Wiermanski, TransUnion's global chief scientist. "These efforts are important components within insurance risk scores and recent behavior by consumers have led to a lower Insurance Risk Index. However, consumers are beginning to loosen their purse strings as purchases of durable goods like cars and furniture rose a whopping 21.6 percent during the fourth quarter. Many of these purchases are reflected on consumer credit reports in the form of installment credit, which is now appearing on more consumer credit reports along with rising levels of installment debt.
"Because installment debt activity is an important component within TransUnion's insurance models we may be at the cusp of witnessing an increase in the Insurance Risk Index. With increased activity and levels of installment debt, more consumers may potentially have lower insurance risk scores, adversely impacting the IRI."
"As we begin to see fluctuation of the Insurance Risk Index across a diverse geography, the stable and relatively low loss ratios insurance providers have experienced over the past several years may be coming to an end. This may be an excellent time for insurers to re-examine their portfolios and prepare now to effectively mitigate any risks associated with higher replacement costs associated with damaged property and autos," said TransUnion's Geoff Hakel, group vice president of TransUnion's insurance business unit.
As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs associates in more than 25 countries on five continents. www.transunion.com/business
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