1. The Indication - Is That Your Final Answer?
CAS Ratemaking Seminar
March 10, 2005
INT-3

2. Travelers Property Casualty Guo Harrison
Introductory Session 3
Betsy DePaolo
Travelers Property Casualty
Guo Harrison
Medical Mutual Liability Insurance Society of Maryland

3. Overview Interpreting the Indication Marketplace Expected Reactions
Alternatives to Rate
Testing the Action
Commercial vs. Personal Lines

4. Interpreting the Indication
Data Anomalies
Unusual Loss Activities
Weather Effects, etc.
Changes in Statutes
Changes in Company Practices
Underwriting Guidelines
Claims Handling
Distributional Changes
Planned Changes

5. Why it’s not “The Final Answer”
Indicated Change is Negative
May lead to profit problems
Don’t need to drop rates that much
Indicated Change is very Positive
Will lose customers
Adverse Selection
Regulators won’t allow

6. Marketplace Underwriting Cycle Competitive Position
Competitors Actions – Recent and Projected
Competitor Considerations

7. 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
Consider both $ and % differences

8. Competitive Position

9. Competitive Position
Policy Premiums

10. Competitive Position
Win Ratios (# of times company price is lowest)

11. Competitive Position
Percentage Differences in Policy Premiums

12. Competitive Position
Dollar Differences in Policy Premiums

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

14. Competitor Considerations
Financial Strength
Customer Service
Claim Service
Ease of Doing Business
Commission Levels

15. Expected Reactions Policyholder Agents Regulators Shareholders
Retention
New Business
Agents
Regulators
Recent Approvals
Shareholders

16. Expected Reactions
Rate Change Histogram – Dollar Changes

17. Expected Reactions
Rate Change Histogram – Percentage Changes

18. Alternatives to Rate Revenue Indication, not Rate Indication
Expense Actions
Underwriting Guidelines
Marketing Plans

19. Testing The Plan Intuitive Evaluation
Elasticity of Demand around similar changes
Feedback from Agents
Scenario Modeling

20. Scenario Modeling

21. Scenario Modeling

22. Scenario Modeling

23. Scenario Modeling

24. Scenario Modeling

25. Conclusions Four major considerations Profitability Competition
Disruption
Retention