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A City of Two (Re)Tails

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

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A City of Two (Re)Tails

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  1. A City of Two (Re)Tails 2003 Fall CAS Meeting November 11, 2003 Robert J. Walling

  2. The City of Toningbloom has 2 Hardware Stores… Sucha Tools Soft Hardware

  3. 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.

  4. They both went insurance shopping…

  5. The quotes came back…

  6. Why? Elementary my Dear Watson…

  7. “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.)

  8. How do companies address these factors?

  9. Traditionally schedule credits and rating tiers? THE HIGHEST NET RATE IS OVER FOUR TIMES THE LOWEST!!

  10. Companies are moving to Underwriting Scorecards Using GLM

  11. 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)

  12. 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

  13. Underwriting Scorecard Example

  14. Underwriting Scorecard Example

  15. Underwriting Scorecard Example

  16. 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.

  17. 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

  18. Credit’s Problem - Interactions

  19. “There’s always a greater fool”

  20. Adverse Selection

  21. The Impact of Credit and Other Factors May Vary by Class

  22. Underwriting Scorecards Reflecting Interactions • Multivariate analysis allows the modeling of interactions and modern policy management systems facilitate the implementation of more complex tiering systems

  23. Parting Thoughts • Where there is no vision, the people perish. • Proverbs 29:18 The data’s ready, The technology’s ready, ARE YOU READY???

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