The Indication - Is That your Final Answer CAS Ratemaking Seminar March 7, 2002

Introductory Session 4 Mark Homan The Hartford Roger Schultz Allstate

Overview  Interpreting the Indication  Marketplace  Expected Reactions  Non-rate revenue Alternatives  Testing the Action  Market Models – Putting it All Together

Why it’s not “The Final Answer”  Indication is too low  May lead to profit problems  Don’t need to drop rates that much  Indication is too high  Will lose customers  Regulators won’t allow  Not really needed

Interpreting the Indication  Data Anomalies  Large Losses  Weather Effects  Changes in Statutes  Changes in Company Practices  Underwriting  Claims  Planned Changes

Marketplace  Competitive Position  Recent Competitors Actions  Projected Future Changes

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

Competitive Position  Indication of +8.7%  Competitive Position – 20% below  Resulting Position – 13% below  Competitive Position – 10% above  Resulting Position – 20% above

Competitor Actions  Recent Changes –  Not reflected in competitive position  Reflected in competitive position  Indicative of future changes

Expected Reactions  Policyholder  Retention  New Business  Agents  Regulators  Recent Approvals

Non-rate Revenue Approaches  Revenue Indication, not Rate Indication  Expense Actions  Underwriting Guidelines  Marketing Plans

Testing The Plan  Expert Judgment  Intuitive Evaluation  Elasticity of Demand around similar changes  Scenario Modeling

Scenario Modeling

Speaker Contact Information Mark Homan AVP & Actuary, Personal Lines Pricing The Hartford Hartford Plaza, T-1-55 Hartford, CT Phone: 860/ Fax: 860/