Built by Predictive Modelers for Predictive Modelers TM Attaining growth in a concentrated market Finding and capitalizing on opportunity Creating competitive advantage It can be achieved...
FIGHTING FOR A SHARE OF THE PERSONAL AUTO MARKET From 1980 to 2010, the number of carriers writing personal auto insurance dropped by two-thirds. Why? Over the past 30 years, the personal auto market has become increasingly concentrated, changing from a market in which stable companies enjoyed an average 7% annual growth in direct written premium to one in which direct written premium growth has been flat since 2004. Market Share of Personal Auto Carriers 1980 Top 2 carriers Carriers 3 10 Carriers 11 25 Carriers 26 50 Carriers 51 and lower The lack of direct written premium growth has led carriers to fight for market share to create growth, and it s the largest national carriers that have gained the most ground. The market share of the top two carriers has held steady at approximately 29%, while the market share of carriers ranked three through ten has grown substantially from 22% in 1980 to 39% in 2010. So where does that leave the rest of the field? 14% 18% 18% 22% 29% SURVIVAL OF THE FITTEST 2010 Carriers not in the top ten are left competing for a shrinking market share one that shrank from what was almost half the market in 1980 to less than one-third in 2010. In just the past eight to ten years, this group lost another 8% of its market share, and the number of carriers dropped 9%. 14% 8% 9% 29% To survive, it s imperative that companies not only protect their current book of business but also grow profitable market share. But how? How can a company create the necessary competitive advantage that differentiates it from the competition? 39% Note: Percentages are rounded. 2 Verisk Insurance Solutions ISO AIR Worldwide Xactware
ACHIEVING HIGH LEVELS OF PREDICTIVE ACCURACY To survive, insurers need to look for new tools to help them gain a deeper understanding of what drives strategic growth in the evolving insurance marketplace. Over the past 30 years, actuaries have been continually improving their procedures using various techniques to get a better understanding of how accurately their pre - miums are reflecting their risk. They ve also been looking at other types of variables that might factor into the potential for loss. Knowing how variables are influencing the outcome is key. To do that, carriers are incorporating more and more sophisticated intelligence to increase predictability. Companies embracing predictive modeling efforts and moving toward the goal of achieving the highest level of predictive accuracy will be better armed to protect their book of business and achieve profitable growth. IS BUILDING YOUR OWN PREDICTIVE MODEL RIGHT FOR YOU? As competition intensifies, carriers are less comfortable than ever being market followers. They re looking for even more powerful data and analytics to help develop strategies for underwriting and pricing, so they can be proactive rather than reactive to what their competitors are doing. To accomplish this, some are investing in predictive analytics. Predictive analytics is a significant advancement in the ongoing search for better ways to develop equitable rates that accurately reflect the experience of groups of insureds. But building a predictive model is a major undertaking, requiring a significant commitment of resources, time, and expertise that few companies have. Is building your own model right for you? Consider this: Building a robust, tested model for personal auto can cost upwards of $6 million over an average of five years to complete the four necessary phases of model development (planning and initial exploration, data preparation and analysis, analysis and modeling, and model implementation and regulatory approval). Then, ongoing investment in resources and talent will be required to recalibrate, improve, and maintain the model. Executives are taking a hard look at their operations and asking: How do we drive improved ROI for our overall book of business? What s the risk of copying other carriers rating plans? How can we measure risk more precisely within our rating territories? How can we incorporate geo-specific risk into our current rating plans? What are the steps to build a risk estimation model? How can we differentiate our model from the rest of the competition? Given the size of our book, how should we improve risk rating? ISO Risk Analyzer Personal Auto 3
JUMP-START YOUR MODELING EFFORTS With ISO Risk Analyzer Personal Auto, you can jumpstart your modeling efforts. Tap into a predictive model that s already built and tested, and you ll benefit from our ongoing multimillion-dollar-a-year investment in enhancements and fine-tuning. You can put the model s output right to work improving your pricing strategy while avoiding any detrimental effects on your book of business during the four to five years it would take to build your own model. And you can do so knowing that ISO has filed its ISO Risk Analyzer Personal Auto modules in all states where ISO has a filed personal auto program. A number of states have already approved/ acknowledged the filings, and we continue to work with insurance departments in an effort to pursue approval/ acknowledgment in additional states. Acceptance of ISO s filings makes it easier for you to incorporate output from the ISO Risk Analyzer Personal Auto modules into your own filings. To develop the analytic and predictive capabilities of ISO Risk Analyzer Personal Auto, ISO brought together some of the top minds in statistical modeling, actuarial science, data management, information technology, and many other disciplines. These experts apply their combined knowledge to examine massive amounts of data from numerous sources to determine what to include and not include in the model, so you get risk evaluations based on the most relevant and predictive insurance risk factors. With ISO Risk Analyzer Personal Auto, you get the output from a model that examines hundreds of indicators and predicts expected losses at a highly refined level, and you gain immediate access to insights learned from years of analysis on vast amounts of data. You also get predictive analytics backed by the dedication and commitment of ISO, an innovator and leading source of information about property/casualty insurance risk. Leveraging the data and predictive modeling expertise of ISO and data from external sources, ISO Risk Analyzer provides sophisticated pricing refinement in one powerful set of tools. 4 Verisk Insurance Solutions ISO AIR Worldwide Xactware
CLASSIFY, SEGMENT, AND PRICE YOUR RISKS WITH CONFIDENCE The ISO Risk Analyzer suite of predictive modeling tools includes two robust modules to help you classify, segment, and price your personal auto insurance risks with confidence. These sophisticated tools offer you a powerful way to: evaluate your personal auto risks with more accuracy target your marketing, underwriting, and pricing efforts discover new opportunities that can help improve your competitive differentiation in the marketplace Both modules provide output you can use as stand-alone analytics or as an enhancement to your current modeling solution. Environmental Module Using predictive modeling to examine environmental indicators that can affect personal auto risks, the ISO Risk Analyzer Personal Auto Environmental Module can predict expected losses for your risks at the policy level by major coverage. You simply input the garaging address of each risk, and the environmental module analyzes the interactive effects of hundreds of variables. Vehicle Module for Physical Damage The ISO Risk Analyzer Personal Auto Vehicle Module for Physical Damage is a powerful analytic tool that uses vehicle characteristics to predict collision and comprehensive losses at a highly refined level. The vehicle module for physical damage represents a significant evolution in the development of vehicle symbols and vehicle rating. ISO Risk Analyzer Personal Auto 5
XX Loss Cost 389 411 412 437 438 468 469 506 507 553 554 652 653 834 835 1187 XX In Territory XX, ISO Risk Analyzer Personal Auto provides loss costs ranging from $438 to $1,187. FINDING AND CAPITALIZING ON OPPORTUNITY Using territory average loss ratios to determine pricing for all risks in a territory, as carriers typically do, generates prices that are too high for some and too low for others. This can leave your company vulnerable to your good risks being lured away by a competitor s lower premiums and prone to lost revenue from bad risks not paying the proper premium to cover losses. ISO Risk Analyzer Personal Auto can drill deeper than the territory levels of most insurers, producing loss costs by coverage, so you can price your risks with greater accuracy. To illustrate, let s look at the example that follows. In Territory XX, the average loss cost is $812.50. Analyzing the risks at a highly refined level, ISO Risk Analyzer Personal Auto has determined loss costs for policyholders within the territory ranging from $438 to $1,187. A carrier using the average loss cost of $812.50 to price all business within the territory will be overpricing some policyholders while underpricing others. By using ISO Risk Analyzer Personal Auto to determine more accurate loss cost estimates for segments of your business, you ll be able to refine your pricing to determine premium that more closely matches the associated risk. ISO Risk Analyzer Personal Auto can identify those opportunity gaps so you can adjust your pricing strategy and capitalize on them. 6 Verisk Insurance Solutions ISO AIR Worldwide Xactware
TOTAL PERSONAL AUTO POLICY TOOL SET In our continuing effort to enhance the value of ISO Risk Analyzer Personal Auto, we re developing additional predictive models to complement output of the environmental module and vehicle module for physical damage. The end result will be a total personal auto policy tool set. ENVIRONMENTAL MODULE refinement of territory segmentation VEHICLE MODULE FOR PHYSICAL DAMAGE refinement of vehicle segmentation DRIVER MODULE refinement of class plan segmentation (in development) CREDIT RULE add-on personal identifier (in development) COMPREHENSIVE ANALYTIC SUITE In addition to the predictive modeling tools for personal auto, the ISO Risk Analyzer suite also offers tools for commercial auto and homeowners. For more information on ISO Risk Analyzer, send e-mail to isoriskanalyzer@iso.com. ISO Risk Analyzer Personal Auto 7
545 Washington Boulevard Jersey City, NJ 07310-1686 www.iso.com Insurance Services Office, Inc., 2012. ISO, the ISO logo, ISO Risk Analyzer, and the ISO Risk Analyzer logo are registered trademarks and Verisk Insurance Solutions, the Verisk Insurance Solutions logo, and Built by Predictive Modelers for Predictive Modelers are trademarks of Insurance Services Office, Inc. AIRWorldwide and the AIR Worldwide logo are registered trademarks of AIR Worldwide Corporation. Xactware is a registered trademark of Xactware Solutions, Inc. All other product or corporate names are trademarks or registered trademarks of their respective companies. z12067 (6/12)