Insurers now have the tools to fine-tune catastrophe risk exposure in personal lines comparable to methods used for auto coverage, according to a new study from Chicago-based Aon Re Inc.

Randall Brubaker, Aon Services senior vice president, said those insurers with sophisticated segmentation methods for personal auto lines are now starting to show improved results over those without such tools.

“The next phase of improvements in personal lines property will include substantial improvements to the disciplines and tactics associated with customer segmentation on catastrophe risk,” he said.

The past two years of increased hurricane activity has only accelerated the need for this new so-called cat scoring.

Aon Catastrophe Scores is based upon a multimodel analysis for the unique portfolios of individual insurers. “The results from the past two hurricane seasons have proven that multiple model strategies have been more predictive than the use of any one standard model,” Mr. Brubaker said.

The ability to pair the Aon Catastrophe Scores program at the policy and location level with insurance, credit and other core multivariates will allow insurers to improve the quality of pricing for all the risks insured with the policy, he said.

When an underwriter receives a policy application, the applicant's more traditional criteria of credit and property loss history are then factored with the property's catastrophe score in order to come up with a price that reflects the risk in a closer manner than ever before, Aon Re said.

Byron Ehrhart, Aon Re Services, said Aon Cat Scores works best with small commercial and personal lines properties.

As for the medium and large commercial accounts, Mr. Ehrhart said, “With any kind of engineered product we have found the base catastrophe models have not performed as good as they have with small commercial and personal lines.”

Personal scoring tools that combine credit, education and other factors work well up to a point. “But they substantially fail to differentiate clients on catastrophe risk,” Mr. Ehrhart said.

Mr. Ehrhart said it was possible the Cat Scores model could be controversial. “My experience is any kind of change can raise the hackles of people,” he said, particularly since this model could result in some insureds getting higher rates as others get a lower price.

Special Reports /

New Cat Scoring Fine-Tunes Property Risk

Related Stories

Recommended For You