National Underwriter - October 17, 2011

interest in the use of modeling in the claims organization—for fraud detection, subrogation and other purposes. I think we’ll see this as a major focus for many insurers over the next few years.”

fines, which in actuality was just a normal cost of doing business. Gee! I love our judicial system.”

WITH EVERY ARTICLE we publish on PropertyCasualty360.com, we invite our readers to share their thoughts and air their opinions.

 An article on “Claims And Business Intelligence: Adjusters In The Spotlight” earned this comment from Spolunsky: “Too many carriers today are only interested in the number of files closed; and the more per adjuster, the less they have to spend on staff. We all know that a carrier can go to the state and ask for rate increases based on the paid loss but cannot seek increases based on cost of staff.”

 Richardziert had this to say about the article “New Options Emerge On The Specialty Distribution Road”: “It just seems all too ‘Willy Nilly’ to me—where everything is up for grabs and by doing so, you cut the heart out of any long-term, well-established relationships.”

 The report “Building The Case For Predictive Modeling: A Focused Approach” led to this response from James Ruotolo: “Predictive modeling is indeed ‘more attainable than ever.’ I am seeing a lot more

 The article “Featured Fraud: Oops. He Did It Again” had Shane commenting: “Smart man. It was a gamble worth taking for one with no morals. Caught multiple times, yet no jail time. The upside if not caught was increased personal wealth. The downside was paying back restitution and

 The report “‘Govt. Intervention’ In Nat-ural-Disaster Insurance Burdens Taxpayers: Lloyd’s” provoked this response from Guest: “It strikes me as funny that when this issue (infringement on the market by politicians) affects a specific industry, the industry easily recognizes it as a problem. However, when viewing the issue through the prism of the entire economy, these same industry leaders often lose their ability to discern similar outcomes. If infringement on market solutions to risk management can be so frowned upon, why don’t more of these industry leaders call for more divestment of government intervention in other areas of the economy (think healthcare, housing and other forms of social welfare)?” NU

COPYCAT RATEMAKING

continued from page 26

Besides, a carrier’s rates reflect much more than cost structure. They also represent numerous market-based decisions relating to issues as diverse as target marketing, agency relationships, and the balance between attracting new customers and retaining existing customers.

By adopting the competitor’s rates, the copycat implicitly adopts a host of strategic business decisions without participating in the decision-making process at all. If the copycat’s strategies don’t line up with what the competitor had in mind, the result may be an even greater mismatch between revenue and costs. It’s a risky bet.

BREAKING THE CRITICAL FEEDBACK CYCLE The ratemaking process provides an essential feedback loop for a company to examine both its costs and its revenues.

As actuaries review rates, they can examine how claims and operating costs are trending and provide important information to company management.

But if a company uses imitation rate-
making, its actuaries may spend more time
trying to understand the competitor’s rates
than determining the company’s own costs.
The flow of cost-trend information may less-
en or slow, weakening management’s ability
to monitor development of adverse trends.

THE ALTERNATIVE: A COST-BASED FOCUS

The way to mitigate pricing risk is to be constantly aware of costs and how premiums relate to them.

Insurers cannot afford to let competitive pressures divert focus from understanding their costs and managing both expenses and revenues to accomplish strategic goals.

Companies increasingly have better access to data and analysis that can bring sharper insight concerning cost and revenue drivers. Data marts and reporting tools provide important information about internal operating costs.

Companies can supplement their own analyses of loss experience with sophisticated new predictive analyses of industry loss data to gain better understanding of loss costs and enhanced rate segmentation—without exposing themselves to the costs and risks of copycat ratemaking. NU

 David Cummings, FCAS, CPCU, is vice president and chief actuary at ISO Innovative Analytics. He may be reached at dcummings@iso.com.

This index is provided as an additional service to our readers. The Publisher does not assume any liability for errors or omissions.

Advertiser Index

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