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Anyone who relies on automated vehicle navigation systems while driving in congested traffic knows to disregard the principle that the shortest distance between two points is a straight line. One-way streets, missed turns, and dubious directions often make reaching a destination by car seem to take far longer than by foot.

The same could be said of traditional insurance ratemaking approaches. Like a car navigating heavy traffic, the traditional ratemaking approach, otherwise known as multivariate regression, considers numerous rating variables to estimate risk. Sure, they may accurately reflect a policyholder’s loss propensity. But at times, it seems the path is more circuitous than necessary.

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