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Motor Postcode Zoning Working Party. Duncan Anderson Roger Massey Saideh Charlton Chris Spiller Dave Coughlan (Chair) Kim Pape Mark Harrison James Tanser Stephen Jones Richhard Verrall. Aims. Understand market Data availability Possible approach. Importance of zoning.

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Motor Postcode Zoning Working Party

Duncan Anderson Roger Massey

Saideh Charlton Chris Spiller

Dave Coughlan (Chair) Kim Pape

Mark Harrison James Tanser

Stephen Jones Richhard Verrall


Aims

  • Understand market

  • Data availability

  • Possible approach


Importance of zoning

  • Review of postcodes

  • 3rd biggest factor

  • Needed to limit scope

  • Theft only 10 - 15%


Market analysis

Market Analysis


Investigating market rates
Investigating market rates

  • EL Systems Præmium

  • "Average" risk consideredfor every UK post code district

  • 18 comprehensive quotesobtained from 15 insurers

  • Some possible interactions also examined

  • Limited

    • districts only

    • no direct writers

    • off screen discounts


Post code categorisation

1

10

2

11

3

12

4

14

5

15

6

16

7

16

8

17

9

17

10

18

11

19

12

19

13

19

14

20

15

20

16

21

17

22

18

125

Post code categorisation

Number of

categories

Insurer


Post code categorisation1

1

10

2.12

2

11

1.97

3

12

2.29

4

14

3.30

5

15

2.20

6

16

2.18

7

16

2.19

8

17

2.67

9

17

2.12

10

18

2.16

11

19

2.70

12

19

1.93

13

19

2.31

14

20

3.17

15

20

2.17

16

21

3.13

17

22

2.76

18

125

2.26

Post code categorisation

Highest premium /lowest premium

Number of

categories

Insurer


Interactions
Interactions


Interactions1
Interactions


Example interaction

1.06

1.05

1.04

1.03

1.02

1.01

1.00

High

High

Vehicle Group

Area

Low

Low

Example interaction


Loadings by postcode
Loadings by postcode

  • For each company, "average loading" for a district defined as premium for district divided by unweighted average of premiums across all districts

  • Districts ordered by average"average loading"

  • Average loading plotted against district














Information available

  • Complex

  • Appropriate

  • Up to date

  • Higher level view


Data

  • Internal data

  • External

  • Combined/Grouped


Interesting views

  • Drive around and look

  • Social deprivation index

  • Subjective views


Methods

  • Size of exercise

  • Consider residual risk

  • Three main types of approach

  • - Smoothing

  • - Credibility

  • - Market related


Smoothing

“Based on underlying assumption that

areas “close” each other have similar risk”

  • Adjacency?


Credibility

“The risk associated with a postcode is a mixture of its own experience and some other estimate of expected”

Appropriate?


Market Related

  • “everybody doing it, so I should too”

  • Realistic?


Approach

  • Smoothing - “weighted distance”

  • - “Spatial models”

  • Credibility - “Credibility Method”

  • Market - “Average Market”

  • - “External provider”

  • Other - “Modern Heuristic”


Approach
Approach

  • Split data 70/30

  • Standardise data

  • Use residual risk to zone

  •  squares as test statistic


Simple results

  • All proved better than null model

  • Little to choose between results

  • Combination of “credibility and weighted distance” is the best



Implementation

  • Solid risk cost

  • Improved understanding


Implementation - issues

  • Competitive position

  • Existing customers

  • Systems


Conclusion

  • Market is not uniform in approach

  • Suggest approach as mixture ofmethods


Motor Postcode Zoning Working Party

Duncan Anderson Roger Massey

Saideh Charlton Chris Spiller

Dave Coughlan (Chair) Kim Pape

Mark Harrison James Tanser

Stephen Jones Richhard Verrall


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