1. This post aims to provide an overview of the main features of Commercial insurance and the roles of portfolio managers and case underwriters in the pricing process.
2. Issues covered would also include the key differences between the Corporate and Small Medium Enterprise segments of Commercial Insurance and the drivers behind the market prices.
PROBLEMS WITH COMMERCIAL INSURANCE PRICING
1. There has been little progress in pricing commercial insurance portfolios due to its characteristics as follow:-
2. Policies being heterogeneous within the same product.
3. Poor, scarce or incomplete data.
4. High level of underwriting judgement applied to pricing of individual risks
5. The overall profitability is impacted by large losses.
6. Large number of complex products and covers.
1. Appropriate pricing methods should cater to the following characteristics of a commercial insurance portfolio:-
2. High proportion of large losses
3. The use of experience rating to price large accounts
4.The large number of industries
5. IBNR / IBNER
6. Level of Superimposed inflation
7. The legal environment including legislative changes
8. Latent Claims
SMALL-MEDIUM ENTERPRISE (SME) SEGMENT
1. A portfolio in the SME segment has the following characteristics:-
2. Large amounts of data
3. Reasonable data quality
4. Automatic Premium Rating
5. Limited Case Underwriting
6. Limited Facultative Reinsurance
7. Standard product wordings customized for the target market sector selected
UNDERWRITING CONCEPTS FOR SME
1. Actuarial pricing concepts and techniques used for personal lines may be applied to SME
portfolios with minor modification.
2. Employ a strategic decision to case underwrite a small sub-set of policies with
high level of risk identified by industry or location.
3.This causes underwriters to select the better risks in the segment and improve the loss ratio performance.
4. Establish monitoring of case underwritten together with auto-rating businesses during renewal.
5. Identify the correlation between discounting and portfolio performance at the Case Underwriting level.
6. Identify the differences in performance by Case Underwriter and its root causes.
7. Set limits and guides on discounting for case underwriters.
