Commercial Carriers Look to Jump on Predictive-Modeling Bandwagon

NU Online News Service, Feb. 7, 11:58 p.m. EDT

Commercial lines carriers are looking to tighten the gap between them and their personal lines peers when it comes to the use of predictive modeling.

According to Towers Watson’s 2011 Predictive Modeling Benchmarking Survey, commercial lines insurers—traditionally behind personal lines insurers in predictive modeling use—are adopting the technique, with about 70 percent saying they either currently use or plan to use it within the next two years.

The newfound commitment might come from the fact survey participants report the use of predictive modeling is improving top- and bottom-line results of companies.

Almost half of all survey-takers say top-line results have been positively impacted by predictive modeling use. Bottom-line benefits of rate accuracy, loss ratio improvement and improved profitability all received positive responses of nearly 75 percent or more.

Towers Watson says all percentages related to positive top- and bottom-line impacts are up 10 percent to 20 percent compared to last year’s survey.

The use of predictive modeling by personal lines writers has been no secret, with about 85 percent saying they use or are planning to use it. The practice hasn’t caught on in the commercial lines sector but survey results appear to indicate these writers are jumping on board.

Towers Watson says the number of standard commercial lines writers using predictive modeling is up from a year ago, and those planning to start programs are in a more robust 25 percent to 41 percent bracket.

“The optimism expressed by the senior executives responding to the survey suggests the range of future uses for predictive modeling is broad, and will include not only pricing and product innovation but also new refinements in areas such as underwriting, risk selection, claim applications and target marketing,” says Brian Stoll, Towers Watson director and the survey’s co-author, in a statement.

The reported profitability improvement “encourages P&C insurers to find even more ways to extend predictive modeling applications and further access the benefits it can offer,” he adds.

Specialty commercial lines carriers are also recognizing the benefits of modeling. While only up to 15 percent of carriers currently use predictive modeling, between 24 percent and 37 percent of specialty commercial survey respondents are looking to adopt it in teh future for pricing and risk selection.

 

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