2006 CAS RATEMAKING SEMINAR PRODUCT DEVELOPMENT (COM -2)

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Presentation transcript:

2006 CAS RATEMAKING SEMINAR PRODUCT DEVELOPMENT (COM -2) BETH FITZGERALD, FCAS, MAAA

Types of Product Development for Commercial Lines What is the Process? Viewpoint of Actuary

Types of Product Development for Commercial Lines New Lines of Business Internet Liability and Network Protection Employment-Related Practices Liability Expanded Coverage for Market Segments Supermarkets, Restaurants, Hotels Use of Sophisticated Analytical Tools for Ratemaking

Outline of Process for New Lines or Expanded Coverages Product Need Policy Form Development Rule/Loss Cost Development Filing Preparation Statistical Impact Marketing/Sales Plans Future

Product Need Customer Survey Monitoring of Market

Policy Form Development Research Coverages Discuss Potential Coverages for Inclusion in Product Draft Policy Forms & Endorsements Discuss with Insurer Panels, Agents, Brokers, Risk Managers Legal Approval

Rule Development - Premium Determination Decide on Rating Structure for Basic Coverage Premium practicality vs. accuracy exposure base classification plan vary rates by state, territory? offer increased limits, deductibles, co-pays? Manual Rules Reviewed by Insurer Panels

Pricing of Loss Costs/Relativities Understand Coverages - inclusions, exclusions, endorsements Provide Input on Coverages Data Needs Data Availability Decide on Methodology

Filing Preparation Loss Cost Filing Conform to State Regulations/Statutes Respond to Regulatory Concerns

Statistical Impact Determine Future Ratemaking Statistical Needs Balance Data Needs with Practicality/Cost of Data Collection May Collect More Detail Than Used in Rating (e.g. territory, individual class) Discuss with IST & Insurer Panels

Marketing/Sales Plan Decide on Target Customers Decide if Provide any Additional Services Risk Management Services, Advisory Policy Application & Underwriting Guidelines Prepare Announcement Material for Customers Coordinate with Internal Staff Sales, Marketing, Finance Follow-up/Feedback

Future Ratemaking Develop/Modify Report Systems Monitor Statistical Data Determine Ratemaking Methodology for Updating Pricing short - term long – term Modify Pricing for Coverage Enhancements

Use of Sophisticated Analytics in Ratemaking Use of multi-variate modeling software Access of current rating variables and/or new variables

Multi-Variate Software Issues Evaluate different software products Flexibility/options Customer support/Reputation of firm History of software Allow for trial period Handling of large volumes of data Computer needs of software Train Staff on Software/Modeling Techniques

Use of current ratemaking data Data Cleansing Issues Use of current ratemaking data Sufficient volume for multi-variate analysis? Cleanse data for more detailed multi-variate analysis Use of new variables Matching of ratemaking data to new variables Data cleansing of new variables

Modeling Issues Selection of modeling method Selection of variables, parameters of model Evaluate diagnostics of model