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A Practical Guide to Commercial Insurance Pricing
Alina Pettifer and James Pettifer © Finity Consulting, The Warranty Group
This presentation has been prepared for the Actuaries Institute 2012 General Insurance Seminar.
The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.
Agenda
Understanding Commercial Insurance
Translating Technical Analysis into Actionable Insights
Data and the Pricing Actuary
Adapting Pricing Techniques to Commercial Insurance
Corporate Segment
SME Segment
Intermediaries Insurance Products
Direct
Differences in Policy Wordings Business Pack Money section: Sum insured is increased by 50% for:
Wording A Wording B
From 60 days before Christmas Day to bank closing time on the first banking day thereafter, both days inclusive
• 8 weeks prior to and including Christmas day • 3 weeks after and including 26 December
From 30 days before Easter Sunday to bank closing time on the first banking day thereafter, both days inclusive
• 6 weeks prior to and including Easter Tuesday • 1 week after but not including Easter Tuesday
• 6 weeks prior to and including any celebrated event of a festive, religious or ethnic nature (other than Christmas or Easter
• 1 week after the same religious or ethnic event or celebration
Pricing Dynamics
Assessment of Profitability
Technical Pricing Assumptions
Product Strategy
Relationships
Market Cycle
Hard Market • Prices stop rising • Insurers making
excess profit
Soft Market Begins • New insurers enter
the market • Prices drop to retain
market share • Underwriting
standards drop
Soft Market • Investors become
nervous • Insurers make lower
than target returns
Hard Market Begins • Underwriting
standards improve • Premiums rise
sharply
Translating technical analysis into actionable insights
Engaging the portfolio manager
Transparency of analysis
Be Proactive
Why is data quality important?
What can an actuary do?
Data Cleansing
Use additional data
Data champion
Some Examples Text Mining
NCPD
Geospatial data
Customer data
ABS Statistics
Technical Pricing – Key Considerations
Very Large Losses
~35% Long Tail
Large number of unique industries
Corporate Insurance
• Setting the price of a policy based on its previous claims experience
Experience Rating
• Assessing the non-claim related costs • Providing a benchmark for the
expected claim costs
Pricing Adequacy Framework
• Impact of different reinsurance arrangements on the profitability distribution
Optimising Reinsurance
Summary To be effective in Commercial Insurance, an Actuary needs to:
Have an in-depth understanding of the Commercial portfolios, the market and the environment
Work in partnership with the Portfolio Manager
Have a detailed understanding of the data and its limitations
Adopt appropriate pricing methods which allow for the specific characteristics of each portfolio