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A City of Two (Re)Tails. 2003 Fall CAS Meeting November 11, 2003 Robert J. Walling. The City of Toningbloom has 2 Hardware Stores…. Sucha Tools. Soft Hardware. Different, but eerily the same…. Both are: Joisted Masonry Protection Class 6 Same Coverages and Amounts of Insurance - PowerPoint PPT Presentation
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A City of Two (Re)Tails
2003 Fall CAS Meeting
November 11, 2003
Robert J. Walling
The City of Toningbloom has 2 Hardware Stores…
Soft Hardware Sucha Tools
Different, but eerily the same…
Both are:– Joisted Masonry– Protection Class 6– Same Coverages and Amounts of Insurance
In fact, the properties have identical “traditional” risk characteristics.
They both went insurance shopping…
The quotes came back…
Insurer Soft Quote Sucha Quote
Farm States $1,900 $1,700
Inilli Mutual $1,800 $1,900
OSInsCo $2,100 $2,100
Yankees Ins Co. $1,500 $2,400
Why?
Elementary my Dear Watson…
“Who” Issues, Not “What” Issues
Look at data off the application that is not rated: Percent Occupied Years in Business Years of Same Mgt. Updated Systems Alarms Sole Occupancy Computer Back Ups Hours of Operation Franchise? Safety Program Employee Mix (Full Time, Leased, etc.)
How do companies address these factors?
Traditionally schedule credits and rating tiers?
Company
Tiering
Factor
Schedule
Max/Min
Percent of Manual
Barbershop I.C. 1.25 +40% 175%
Barbershop I.C. 1.25 -40% 75%
Vanilla I.C. 1.00 +40% 140%
Vanilla I.C. 1.00 -40% 60%
BTA I.C. 0.85 +40% 119%
BTA I.C. 0.85 -40% 51%
TPet I.C. 0.70 +40% 98%
TPet I.C. 0.70 -40% 42%
THE HIGHEST
NET RATE IS OVER FOUR TIMES THE
LOWEST!!
Companies are moving to Underwriting Scorecards Using GLM
Applications of GLM for BOP Pricing Enhancements
Revise Class Factors Revise/Enhance Territories
– May have impact similar to Homeowners on Protection
Create more sound AOI curve Develop Underwriting Scorecard Incorporating
– Credit scores– Other “who” characteristics
(especially those already required on the application)
The GLM Approach
Capture by Policy and by Claim Experience Append Credit Variables and Application Data Develop Frequency and Severity Models
– Consider Relevant Interactions
Combine Models to Develop Pure Premiums and Tiering Plan/Scorecard Elements Simultaneously
Underwriting Scorecard Example
Underwriting Score Points - D&B Financial Assessment
Strength High Good Fair Limited5A 250 250 200 1504A 250 250 200 1503A 250 250 200 1502A 250 200 150 1001A 250 200 150 100BA 250 200 150 100BB 250 200 150 100CB 200 200 150 100CC 200 200 150 100DC 200 150 100 50DD 200 150 100 50EE 200 150 100 50FF 200 150 100 50GG 200 150 100 50HH 200 150 100 50
Absence 250 200 150 100
Composite Credit Appraisal
Underwriting Scorecard Example
Years of PercentCurrent Score Building ScoreControl Points Occupied Points
>10 150 >95% 1006-10 75 65-95% 500-5 0 <65% 0
Part Time/ Score Safety ScoreFull Time Points Program Points
<33% 50 Formal 5033% - 67% 25 Informal 25
>67% 0 None 0
Building < 25 Yrs Old 25 Pts Owner on Premises 15 PtsCentral Alarm 25 Pts Franchise 10 PtsNo Parking Lot 10 Pts Closed by 9 pm 10 PtsOffsite EDP Backup 5 pts No Delivery 5 pts
Underwriting Scorecard Example
Cumulative TieringPoint Range Factor
0 - 99 1.00100 - 199 0.92200 - 299 0.84300 - 399 0.76400 - 499 0.68500 - 599 0.60600 - 700 0.52
Issues of Developing BOP U/W Scorecard
Concerns Over Use of Credit “No Hits” Capture of Application Data Volume of Data for Certain Classes, Territories,
etc.
Benefits of Using GLM for BOP Pricing Enhancements
Reduce Reliance on Underwriting Discretion Improves Predictive Accuracy Creates Adverse Selection for Competitors Reflects Interactions with Between Rating
Factors
Credit’s Problem - Interactions
1.70
1.32
1.19
1.04
0.86
0.73
1.51
1.24
1.12
1.00
0.90
0.81
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
1 2 3 4 5 6
Level
Ind
ica
ted
Ra
te D
iffe
ren
tia
l
Loss Ratio
GLM
“There’s always a greater fool”
Insurer Soft Quote Sucha Quote
Farm States $1,900 $1,700
Inilli Mutual $1,800 $1,900
OSInsCo $2,100 $2,100
Yankees Ins Co. $1,500 $2,400
Naïve Capital $1,350 $2,720
Adverse Selection
Insurer
Soft Quote
Soft Loss Ratio
Sucha Quote
Sucha Loss Ratio
Farm States $1,900 51% $1,700 92%
Inilli Mutual $1,800 54% $1,900 82%
OSInsCo $2,100 46% $2,100 74%
Yankees Ins Co.
$1,500 65% $2,400 65%
Naïve Capital $1,350 72% $2,720 57%
The Impact of Credit and Other Factors May Vary by Class
Pure Premium Relativities by Program and Years in Business
0-3 4-6 7-10 10+
Years in Business
Pu
re P
rem
ium
Re
lati
vit
y
Contractors
Habitational
Office
Restaurant
Retail/Service
Wholesale
Underwriting Scorecards Reflecting Interactions
Multivariate analysis allows the modeling of interactions and modern policy management systems facilitate the implementation of more complex tiering systems
Years ofCurrentControl Contr. Habit. Off. Rest. Ret./Serv. Wholes.
0-3 60 115 120 70 95 1004-6 100 130 125 85 100 110
7-10 120 135 135 100 120 12510+ 150 150 150 150 150 150
Score Points
Parting Thoughts
Where there is no vision, the people perish. – Proverbs 29:18
The data’s ready,The technology’s ready,
ARE YOU READY???