The American Association of Insurance Services (AAIS) announced today that it expects to conclude testing and begin countrywide filing of a new by-peril rating plan available under its Homeowners Program in July 2010.   AAIS is a national advisory organization that develops standardized policy forms and rating information used by more than 600 property/casualty insurers throughout the United States. AAIS maintains programs for 24 lines of personal, commercial, farm and inland marine insurance.   By-peril rating allows insurers to rate policies more accurately, based on the particular loss exposures of each risk. AAIS's new plan will be offered as an option to companies using the AAIS Homeowners Program, which will also include a traditional consolidated rating plan.   The AAIS by-peril rating plan will allow users to rate homeowners policies on the basis of 10 causes of loss, half of them derived from catastrophe exposure and half reflecting "non-cat" exposures.   "The 10 peril structure gives the plan the flexibility needed to rate policies adequately across all states," said Deborah Summerlin, AAIS VP of insurance lines, in a presentation at the recent AAIS "Main Event" conference in Fort Myers, Fla.   According to Summerlin, a plan that accommodates 10 causes of loss ensures that significant loss factors in different states are adequately reflected in the rating of a policy.   The plan utilizes a single rating algorithm for all perils, making it relatively simple to incorporate into company operations, and companies can simplify the plan further by reducing the number of perils, Summerlin added.   AAIS's by-peril rating plan follows several months of thorough analysis of potential rating variables to identify those found to be predictive of loss. In that process, AAIS actuaries utilized the "Pretium" statistical software platform developed by Towers Watson, the international actuarial consulting firm.   "Our actuarial staff would run and re-run our models multiple times to determine relativities," Summerlin said. "As a result of that analysis, three of 35 weather variables, and two of five crime variables, were determined to have significant impact on loss. In all, the use of by-peril rating will allow an insurer to develop a premium to reflect the unique exposure posed by a risk."

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