1. 2006 CAS RATEMAKING SEMINAR PRODUCT DEVELOPMENT (COM -2)
BETH FITZGERALD, FCAS, MAAA

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

3. 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

4. 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

5. Product Need
Customer Survey
Monitoring of Market

6. 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

7. 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

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

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

10. 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

11. 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

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

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

14. 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

15. 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

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