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Decoding the Indication: Rate Setting Strategies & Competitive Insights

Join us for a seminar on CAS ratemaking and strategic decision-making in the insurance industry. Learn about interpreting indications, marketplace dynamics, competitive positions, and expected reactions to rate changes. Explore alternatives to rate adjustments, testing strategies, and the significance of competitor actions and considerations. Discover how to navigate the complexities of rate setting to ensure profitability, competitive advantage, and customer retention.

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Decoding the Indication: Rate Setting Strategies & Competitive Insights

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  1. The Indication -Is That Your Final Answer? CAS Ratemaking Seminar March 10, 2005 INT-3

  2. Introductory Session 3 Betsy DePaolo Travelers Property Casualty Guo Harrison Medical Mutual Liability Insurance Society of Maryland

  3. Overview • Interpreting the Indication • Marketplace • Expected Reactions • Alternatives to Rate • Testing the Action • Commercial vs. Personal Lines

  4. Interpreting the Indication • Data Anomalies • Unusual Loss Activities • Weather Effects, etc. • Changes in Statutes • Changes in Company Practices • Underwriting Guidelines • Claims Handling • Distributional Changes • Planned Changes

  5. Why it’s not “The Final Answer” • Indicated Change is Negative • May lead to profit problems • Don’t need to drop rates that much • Indicated Change is very Positive • Will lose customers • Adverse Selection • Regulators won’t allow

  6. Marketplace • Underwriting Cycle • Competitive Position • Competitors Actions – Recent and Projected • Competitor Considerations

  7. Competitive Position • Various measures of competitiveness • Percentage of Competitor rates • Single Competitor • Average of Group of Competitors • Win Rate • Percentage of cases when you have best rate, or within $X of best rate • Consider both $ and % differences

  8. Competitive Position

  9. Competitive Position Policy Premiums

  10. Competitive Position Win Ratios (# of times company price is lowest)

  11. Competitive Position Percentage Differences in Policy Premiums

  12. Competitive Position Dollar Differences in Policy Premiums

  13. Competitor Actions • Recent Changes – • Not reflected in competitive position • Reflected in competitive position • Indicative of future changes

  14. Competitor Considerations • Financial Strength • Customer Service • Claim Service • Ease of Doing Business • Commission Levels

  15. Expected Reactions • Policyholder • Retention • New Business • Agents • Regulators • Recent Approvals • Shareholders

  16. Expected Reactions Rate Change Histogram – Dollar Changes

  17. Expected Reactions Rate Change Histogram – Percentage Changes

  18. Alternatives to Rate • Revenue Indication, not Rate Indication • Expense Actions • Underwriting Guidelines • Marketing Plans

  19. Testing The Plan • Intuitive Evaluation • Elasticity of Demand around similar changes • Feedback from Agents • Scenario Modeling

  20. Scenario Modeling

  21. Scenario Modeling

  22. Scenario Modeling

  23. Scenario Modeling

  24. Scenario Modeling

  25. Conclusions Four major considerations • Profitability • Competition • Disruption • Retention

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