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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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slide1
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

slide2
Aims
  • Understand market
  • Data availability
  • Possible approach
slide3
Importance of zoning
  • Review of postcodes
  • 3rd biggest factor
  • Needed to limit scope
  • Theft only 10 - 15%
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

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
slide24
Information available
  • Complex
  • Appropriate
  • Up to date
  • Higher level view
slide25
Data
  • Internal data
  • External
  • Combined/Grouped
slide26
Interesting views
  • Drive around and look
  • Social deprivation index
  • Subjective views
slide27
Methods
  • Size of exercise
  • Consider residual risk
  • Three main types of approach
  • - Smoothing
  • - Credibility
  • - Market related
slide28
Smoothing

“Based on underlying assumption that

areas “close” each other have similar risk”

  • Adjacency?
slide29
Credibility

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

Appropriate?

slide30
Market Related
  • “everybody doing it, so I should too”
  • Realistic?
slide31
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
slide33
Simple results
  • All proved better than null model
  • Little to choose between results
  • Combination of “credibility and weighted distance” is the best
slide35
Implementation
  • Solid risk cost
  • Improved understanding
slide36
Implementation - issues
  • Competitive position
  • Existing customers
  • Systems
slide37
Conclusion
  • Market is not uniform in approach
  • Suggest approach as mixture ofmethods
slide38
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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