North American property&casualty insurance carriers currently utilizing predictive modeling continue to see positive ongoing improvements in bottom-line results, according to findings of the second annual predictive modeling survey from New York-based global professional services company Towers Watson. The conclusions are underscored by the fact that predictive modeling continues to gain momentum among insurers, with most carriers either expanding current implementations or planning new or additional predictive modeling applications, notes the firm.
The Web-based survey, conducted in the fall of 2010, targeted 109 executives from U.S. and Canadian property/casualty carriers. Respondents were asked how predictive modeling is being used to support rating/pricing and underwriting/risk selection plans at their companies.
Of the 43 U.S. companies queried by Towers Watson, 88% said the use of predictive modeling enhanced rate accuracy (up from 77% when the survey was first conducted in 2009); 76% said they realized an improvement in loss ratio (versus 57%), and 68% said that it improved profitability (versus 55% a year ago).
Insurers are also broadening use of predicative modeling-tools that rely on advanced statistical modeling techniques, along with critical company and external data related to individual policyholders, competitors, marketplace conditions and customer behavior. Of those queried, 42% (up from 40% in 2009) said predictive modeling furthered the expansion of their company's underwriting appetite, while 39% said it helped increased market share (versus 33%).
"Effective implementation of predictive modeling enhances risk selection and pricing-leading to greater insurer profitability and the potential for growth in market share," says Brian Stoll, Towers Watson senior consultant and the survey's co-author. "As additional companies utilize predictive modeling applications, they will be able to leverage new rating variables and sources of data, and apply the results in new and innovative ways."
The current use of predictive modeling in the United States is up by roughly 10% across all lines of business except commercial property, which remained relatively flat. Personal lines carriers have been more active in core predictive modeling activities over the past two years. Turning to the future, these carriers are significantly broadening their focus, while standard and specialty commercial carriers are pursuing aggressive plans across all aspects of predictive modeling over the next two years.
U.S. personal lines carriers plan to move from focusing on first-generation predictive modeling analyses to a much broader array of analyses. For instance, 65% said they would enhance modeling approaches; 57% noted they would take action to improve data quality, and 54% indicated they would work to increase their internal data capture.
U.S. commercial large account/specialty carriers have had a clear focus on product pricing and plan to expand their focus to multiple dimensions going forward. Sixty-three percent revealed they would extend predictive modeling to additional product lines, while 74% said they were going to enhance modeling approaches.
