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The Indication - Is That Your Final Answer?

The Indication - Is That Your Final Answer?. CAS Ratemaking Seminar March 10, 2005. INT-3. Introductory Session 3. Betsy DePaolo Travelers Property Casualty Guo Harrison Medical Mutual Liability Insurance Society of Maryland. Overview. Interpreting the Indication Marketplace

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The Indication - Is That Your Final Answer?

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

  2. 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 – • 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 • 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

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