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PERSONAL LINES RATEMAKING – WHAT’S DOWN THE ROAD?

PERSONAL LINES RATEMAKING – WHAT’S DOWN THE ROAD?. Midwest Actuarial Forum – September 21, 2007 Jeffrey L. Kucera, FCAS, MAAA – Sr. Consultant EMB America LLC. Agenda. Quick History Recent Developments Predictions Summary Questions. History Developments Predictions Summary Questions.

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PERSONAL LINES RATEMAKING – WHAT’S DOWN THE ROAD?

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  1. PERSONAL LINES RATEMAKING –WHAT’S DOWN THE ROAD? Midwest Actuarial Forum – September 21, 2007 Jeffrey L. Kucera, FCAS, MAAA – Sr. Consultant EMB America LLC

  2. Agenda • Quick History • Recent Developments • Predictions • Summary • Questions • History • Developments • Predictions • Summary • Questions

  3. Quick History • Private Passenger Automobile (50s – 90s) • Tendency to follow ISO or major writer • Class plan expansion in late 60s and early 70s • Easy to obtain competitor information • Company rating plans were well known • History • Developments • Predictions • Summary • Questions

  4. Quick History • Private Passenger Automobile (Late 90s) • Tiering became the fad • Use of multiple companies • Credit introduced by some of the major players • Rethinking of information sharing • History • Developments • Predictions • Summary • Questions

  5. Quick History • Private Passenger Automobile (2000s) • Credit used extensively • Multivariate analysis use spreading • Companies looking to expand market • “Black Box” pricing becoming more common place • History • Developments • Predictions • Summary • Questions

  6. Quick History • Homeowners (50s – 90s) • Tendency to follow ISO or major writer • Easy to obtain competitor information • Company rating plans were well known • Rating focused on the dwelling • Little innovation • History • Developments • Predictions • Summary • Questions

  7. Quick History • Homeowners (Late 90s) • Rethinking of information sharing • Innovation still lagging private passenger auto • A few companies beginning to think about credit and prior losses for rating—but it is very limited • Major emphasis still on dwelling, not occupants • History • Developments • Predictions • Summary • Questions

  8. Quick History • Homeowners (2000s) • Credit and prior losses used extensively • Rating by age extended to other end of spectrum • Multivariate analysis use spreading, but well behind private passenger automobile • Some additional expansions of rating variables • Major concerns continues to be catastrophe exposure • History • Developments • Predictions • Summary • Questions

  9. Recent Developments • Private Passenger Automobile • Multivariate analysis commonplace for large and medium sized companies • No longer ‘common’ rating plans, making rate comparisons a new science • More sophisticated companies considering life time value • Everyone looking for next “credit” • History • Developments • Predictions • Summary • Questions

  10. Recent Developments • Private Passenger Automobile • Interactions between rating variables expanding, e.g. credit and age • Manuals becoming “convoluted” to mask what company is really doing • Territory boundaries and rating seems next logical step for many • History • Developments • Predictions • Summary • Questions

  11. Recent Developments • Homeowners • Multivariate analysis is more commonplace, but not as wide spread as for automobile • Some companies doing by-peril analysis, but not necessarily by-peril rating • Rating algorithms are using many more items related to the occupants of the home • Catastrophe exposure and long-term profitability still the focus for many companies • History • Developments • Predictions • Summary • Questions

  12. Predictions • Private Passenger Automobile & Homeowners • Things will only get more complicated and more confusing • Multivariate analysis will be commonplace • Significant changes to territory definitions is around the corner, and on a coverage or by-peril basis • History • Developments • Predictions • Summary • Questions

  13. Predictions • Private Passenger Automobile & Homeowners • Number of rating variables, and combination of rating variables, will expand significantly • Data will be more important/critical than ever • Biggest winner may be company who unlocks ability to easily get data at time of application • History • Developments • Predictions • Summary • Questions

  14. Predictions • Private Passenger Automobile & Homeowners • Lifetime customer value will find it’s way indirectly into pricing • Optimized pricing will offer a significant advantage to early users • These two items will drive retention modeling to heightened awareness within the industry • History • Developments • Predictions • Summary • Questions

  15. Predictions • Private Passenger Automobile • Household Averaging • Eliminate agent assignment • Recognize users drive more than one car • Vehicle Symbols • Company customization • Quicker response to newer models • History • Developments • Predictions • Summary • Questions

  16. Predictions • Homeowners • By-Peril Rating will become the norm, instead of the exception • Potentially more changes than auto, because not as much attention has historically been paid to this line • Various scoring models will be introduced • Building Construction Score • Fire Protection Score • History • Developments • Predictions • Summary • Questions

  17. Summary • Changes over the next several years will be significant • Major impediments to change include: • Information Technology • Management’s willingness to accept change • Unknown Regulatory Environment with respect to changes that may be made • History • Developments • Predictions • Summary • Questions

  18. Summary • Actuaries need to learn how to drive change • How best to evaluate data • How to present findings and learning so as to be usable by the organization • Companies that dedicate themselves to change, and develop processes for continued change, will be the biggest winners • History • Developments • Predictions • Summary • Questions

  19. QUESTIONS?? • History • Developments • Predictions • Summary • Questions

  20. For information or questions regarding this presentation, please contact Jeff Kucera at:Phone: 312/986-1425 extension 2013Email: jeff.kucera@embamerica.com Website: www.embamerica.comMission:EMB America seeks to help our clients solve complex problems and identify opportunities by providing the appropriate blend of value-added consulting and state-of-the-art software. In so doing, EMB America strives to develop long-term relationships with clients and to be the consulting firm of choice for the business community.

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