The Matrix Inverted: A Primer in the Theory of GLMs CAS Annual Meeting New Orleans November 9-12, 2003 Gilbert Korthals, FCAS, MAAA, Assistant Vice President, Actuary GuideOne Insurance, ,

Encounters Along the GLM Path  Preparing for the trip  Modeling curves  Implementation speed bumps

Choosing the Vehicle & Features  Software  Hardware  Driver

Packing the Van  Data collection  Coding  Exposures  Other situations

Data Collection  Amount of data:  Minimum 50k to 100k earned exposures  Different sources  Matching records  External data  Sources? Cost? Usability?

Coding  Definitions  Thoroughly know your codes  Check for reasonableness  Mapping  Codes change over time  Territory #’s, BI limits  Integrity  How good are the codes?  Still being updated?  Driver/vehicle assignments

Exposures  Balance # of variables and exposures  Try to have 50+% of field populated  Re-map smaller exposures  CW vs state specific analysis?  Low frequency exposures

Other Data Situations  Treatment of CWP’s  Can model handle severity = 0?  Records with negative amounts  Can model handle?  Excess vehicles  What driver chars. do you assign?  Orphan claims  Software

On the Highway - Modeling  Counterintuitive results  Factor categorization  Business decisions

Counterintuitive Results  Interpretation issue  Example - limits & deductibles  Near aliasing  Look at each year to see if pattern consistent  Look at other coverages

Factor Categorization  Categorization  Creating a new variable from two or more other variables – sex and marital status  Myriad of choices & combinations  Need sufficient exposures and claims  Goal is not to find as many combinations as possible  Goal is to find ones too powerful to ignore

Decision Time Considerations  When to change current rates/relativities  How far to change current rates  What new variables to include  Removal of variables impacts interaction among remaining variables  Competition & comparing to existing rates

Competition  Who to look to?  How similar is their rating system to yours?  How similar is their book of business to yours?

Comparing to Competition & Existing Rates  Re-rating book of business  Retention analysis  Leaving money on the table  Know your marketing opportunities  Finalize rating plan  Understand impact of tempering or excluding variables

Managing Market Disruption  No easy answer  To convert or not to convert  Conversion choices  Look at matching price points (assuming you have the data and allowed by regulators)  Allow swings (with or without capping)  Remember credit scoring

Dealing with Other Audiences  Senior management  Underwriting  Systems  Regulators

End of the Road?  Not a once in a lifetime vacation  Fear of breakdowns, detours, squabbling kids and unknown

Questions?