CORPORATE SEGMENT
1. Key differences with SME segments are as follow:
2. Higher level of case underwriting with more exclusions or higher deductibles due to different insurance risk.
3. Poor quality of data due to business complexity and uniqueness.
4. With more capital and able to retain more insurance risk, majority of claim costs are from infrequent large claims.
5. Higher gross written premium & level of reinsurance.
GENERALISED LINEAR MODELLING
1. A standard technique used on the pricing of Personal lines can be used for commercial while taking account of following complexities:-
2. Modelling structure - Segmentation for modelling purposes including the covers and claim types that are covered under the product and the types of risks written.
3. Model fit - Utilize Judgement, underwriting input, and even statistically insignificant factors in the model.
4. Business mix - Duration of modelling period. Changes in the company's strategy of its business mix.
EXPERIENCE RATING
1.Setting the price of a policy based previous claims experience and applied to large policies or for portfolios where the claims frequency is very high (Workers’ Compensation policies).
2. The following factors impact the choice of utilizing a historical claims experience (Experience) or portfolio level assumptions (exposure):-
3. Stability of the claims experience over time.
4. Number of years of available data.
5. Account composition.
6. Exposure rating should be used due to low frequency and high severity of large losses to allow for losses above the large loss limit.
7. Segments experiencing large infrequent losses should have higher weighting towards being exposure rated.
8. To include claims from natural perils in the model
9. Weighting in the model for the different years of experience
INDUSTRY RATING
1. Industry or occupation as a key rating factor.
2. Examples include the types of industries' property, liablity and worker's compensation.
3. The following are approaches by actuaries to account for the industry of the insured in the technical rates and its diadvantages.
4. Underwriting Judgement - highly subjective, difficult to develop granular pricing structures with a large range of hazard levels.
5. Modelling with Industry Codes - Assumes that insured which share the first industry digits have similar claims is not necessarily the case.
6. Attribute driven occupation rating (A method based on grouping industries based on their risk characteristics.) - Relies on underwriting judgement to make an assessment of each
industry against each risk characteristic and takes time and resources.
COMPETITOR ALTERNATIVE ANALYSIS
1. Insurer uses a combination of competitor premium and the technical premium to price segments of the portfolio.
2. Two internal data will also be used - Renewal Rate (the number of policies renewed divided by the number of policies offered for renewal) & Strike Rate (The number of new policies written divided by the number of policies quoted)
3. A low Renewal Rate / Strike Rate – suggests that the insurer premiums are significantly higher relative to their competitors premium. And vice versa.
4. Disadvantages of this method with pricing becoming a key driver of volume is as follows:-
5. Doesnt account for the strength of the relationship that the insurer has with their intermediaries, strength of the brand, size, expertise and other factors.
6. Doesnt factor in the policy wording.
WHATS NEXT
1. We will look at other pricing factors as follow:-
2.Adding Value to the Portfolio.
3. Large loss modelling for commercial portfolios.
