Commercial lines rates in second quarter were 1% lower than a year earlier, according to Towers Watson’s CLIPS survey. Most lines were flat, except for EPLI, D&O and commercial property, which were lower.
Bigger news, at least for actuaries – predictive modelers have been able to increase rates:
Yet those companies that use predictive modeling techniques for pricing and risk-tiering reported slight price increases — on average — compared to companies that do not use predictive modeling. Insurers that have yet to implement predictive modeling experienced price decreases greater than the overall decline of 1.0%……..
……..”The bottom line is that effective predictive modeling enhances underwriting and pricing profitability,” said Bruce Fell, practice leader of Towers Watson’s risk consulting and reinsurance brokerage services to the P&C industry in the Americas. “The commercial lines insurers that are taking advantage of predictive modeling are finding new rating variables and sources of data, and are applying the results in new and innovative ways.”
This is consistent with what I have heard – predictive models help a company focus on what risks to write, and they are able to creep rates higher on those. It’s classic adverse selection – the more advanced companies find the best risks and manage them carefully. The less advanced scrap over what’s left, which isn’t as valuable anyway.
To the non-sophisticate: In insurance, predictive modeling, simply defined, is using sophisticated techniques (like data mining) to find characteristics that help you predict loss experience. Credit scoring, though controversial, is the best example, though there are others. The consultants at Pinnacle published this guide for more information.
Finally, I always try to point out that CLIPS is probably the gold standard of publicly available rate surveys, as it measures changes on renewal policies, adjusting for terms and conditions. Other surveys are more frequent and follow broad trends, though are probably a bit less accurate.
(Via Business Insurance)