Why is a distributional shift likely to have a smaller effect on renewal business?

• A. Renewal pricing is unaffected by scores
• B. Some states/companies only allow use of scores for renewals if it reduces the insured's premium
• C. Renewal pricing is random
• D. Renewal policies are not connected to credit scores

Answer: (B)

The main idea is that how renewal pricing uses scores can limit how a shift in score distribution affects prices. When a state or company only allows using scores for renewals if it reduces the insured’s premium, you can’t increase premiums at renewal based on a lower score. Scores may still lead to discounts if they are favorable, but unfavorable shifts in scores cannot raise renewal prices because the scoring rule is effectively one-sided. This constraint dampens the impact of distributional shifts on renewal business, since the pricing outcome can only improve (or stay the same) rather than worsen due to the score.