Get With the Program

Since The Distinguished Programs Group (DPG) started its program management business 15 years ago, the company has aggregated a great deal of information about the risks it has written, but like any good underwriter, DPG never seems to have enough information. “One of the things we're constantly asking ourselves is: Can we figure out what caused the claims–the various bits of exposure information–or can we figure out what things correlate with claims?” says Andy Potash, chairman of DPG.

DPG has a variety of businesses, but what it is most known for is being a program manager. “We're an outsourced underwriting manager–in this case for AIG,” explains Potash. AIG appointed DPG as the program manager for specific segments of its property book of business, particularly multifamily real estate. The program manager underwrites in 48 states through 1,200 retail insurance agents.

DPG also has a reinsurance company under its umbrella, reports Potash. “We take underwriting risks alongside our insurance company partners,” he says. “In the case of the AIG program, we are a reinsurer to AIG for part of the risk. This aligns us with AIG–we're not just getting paid commissions to aggregate risks, underwrite them, and issue policies. We're also taking risks, so if we make a mistake, it's not only painful to [the carrier], it's painful to us.”

With thousands of locations being insured around the country, it was hard to sort manually through all the data. “We had been looking for a tool that would be able to manage that database and present it back to us in ways that would yield the kind of insights we were looking for,” Potash says.

DPG chose EagleEye Analytics because Potash felt the tool was more user friendly and oriented to DPG's users being able to do their own analysis as opposed to shipping the data to someone else.

The program manager has been using the vendor's Insight product for just under two years. “We gave EagleEye all the data, and EagleEye set it up in its system,” says Potash. EagleEye returned with seven segments of the program manager's book of business that had high correlations between the losses and the exposure data. “They ranged from producing great loss ratios such as 20 percent, which is fabulous, to 200 percent, which makes you ill,” says Potash.

Underwriters need to know the bad risks as well as the good, and as Potash notes, if an underwriter can define what is causing disproportionate losses, the insurer needs either to get more premium dollars for those risks or exit that segment of the market and leave it to someone else.

The underwriter also wants to know which segment has the lower loss ratio and try to spend more time in that segment. “If you can lower your price in a soft market, you could lower your rates quite substantially,” says Potash. “That means you can ride a soft market pretty far and still make an underwriting profit. Our partners don't care whether it's a soft or hard market. They pay us to use our expertise to figure out a way to make money whether the market is soft or hard.”

EagleEye is not in the real estate business, points out Potash, so the vendor didn't know what information it was feeding DPG. “All EagleEye knew was the data was [indicating some segments] yielded a 20 percent loss ratio, and [other segments] yielded a 200 percent loss ratio, and none of the segments described an apartment building we could articulate,” he says.

Potash and Erica Stoller, a DPG analyst, spent time going through the data to come up with segments that were descriptive. “We were able to regroup the data into six segments, and we went back to EagleEye and told it the segments described apartment buildings and the loss ratios attached to those buildings,” he says. “The question we had for EagleEye was whether there was any correlation. We couldn't tell how high the correlations were. It came back and said the correlations were 70 percent, which is pretty terrific. We were able to do something with that data.

“The use of the EagleEye tool, its transparency, and our ability to get an interactive dialogue going with EagleEye enabled us to figure out a way to segment our business,” says Potash. “It allowed us to think about the way we are doing business differently than we did before and to take action to get out of one bad segment and to spend time trying to build another segment.”