1999 CAS RATEMAKING SEMINAR Product Development (MIS - 32) Ron Latva

Personal Lines Differences Price-sensitive and price-driven purchase Coverages similar across carriers Fewer forms differences than commercial lines More issues with regulations and filings

Assumptions for Today Need identified : Develop new personal auto product to price for a wider segment of the market than the traditional multi-company approach Team work! Include people with expertise in pricing, forms, filings, regulatory issues, systems, data, statistical, agency relationships, and training The team should be involved in and informed of all aspects of the project Presented from viewpoint of actuary (pricer)

Steps in Product Design and Development Market research Competitive analysis Competitive analysis Determine rates/rules/forms Filing preparation Filing preparation Internal implementation Training needs Training needs Marketing/sales plans Monitoring/tracking Monitoring/tracking

Market Research Complete before doing any design work Competitors Who are they? What do they do well and not so well? Regulatory environment Review on countrywide basis Customers Agents Insureds

Competitive Analysis Pricing/rating review Review rate competitiveness across variety of risks Choose different target companies based on market segment, territory, or other variables Market basket approach Non-pricing/rating review Underwriting guidelines Coverage differences Marketing messages

Determine Rates/Rules/Forms Base rates Own data Competitors Rating methodology Additive v. Multiplicative Flat dollar v. Percentage Rating relativities Use own data for current variables (territory) Use competitor information for new factors

Determine Rates/Rules/Forms Discounts/surcharges Based on own data, competitors, target market How will the data be collected, validated, and updated? Forms/coverages Match coverage forms to product definition Need to involve legal department Determine appropriate coverages and limits for target market Eligibility Underwriting guides should match pricing and target risks

Filing Preparation Understand state regulations and statutes Know what is and is not allowed for rates and rules Understand approval process Complete filing Follow DOI specifications If new state, follow a respected competitor Work with department of insurance Especially with innovative coverages, discounts, or rating plans

Internal Implementation Systems Statistical needs Data needs Manuals/forms Other printed materials

Training Needs Internal needs Systems Sales/customer service Other home office personnel Other actuaries External needs Agents Customers Insurance departments

Marketing/Sales Plans What is the target market of the product? This understanding is key to sales success! Is pricing appropriate for the target market? What is impact of sales goals on results? Short-term and long-term Top line and bottom line

Monitoring/Tracking Short-range analysis Book of business analysis New business counts Frequency analysis Long-range analysis Overall rate level Specific target segments and overall classification system Credit/discounts

Monitoring/Tracking Need to develop methodology for monitoring before introducing product to marketplace Fine-tuning is necessary It won’t be right the first time! Important to long-term success On going review Constant refinement of product