2006 CAS RATEMAKING SEMINAR
PRODUCT DEVELOPMENT
(COM -2)
BETH FITZGERALD, FCAS, MAAA
Product Development
 Types
of Product Development
for Commercial Lines
 What
is the Process?
 Viewpoint
of Actuary
Types of Product Development for
Commercial Lines

New Lines of Business
 Internet Liability and Network Protection
 Employment-Related Practices Liability

Expanded Coverage for Market Segments
 Supermarkets, Restaurants, Hotels

Use of Sophisticated Analytical Tools for
Ratemaking
Outline of Process for New Lines or
Expanded Coverages



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
Product Need
Policy Form Development
Rule/Loss Cost Development
Filing Preparation
Statistical Impact
Marketing/Sales Plans
Future
Product Need

Customer Survey

Monitoring of Market
Policy Form Development

Research Coverages

Discuss Potential Coverages for Inclusion
in Product

Draft Policy Forms & Endorsements

Discuss with Insurer Panels, Agents,
Brokers, Risk Managers

Legal Approval
Rule Development - Premium
Determination

Decide on Rating Structure for Basic
Coverage Premium




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
practicality vs. accuracy
exposure base
classification plan
vary rates by state, territory?
offer increased limits, deductibles, co-pays?
Manual Rules Reviewed by Insurer Panels
Pricing of Loss Costs/Relativities

Understand Coverages - inclusions,
exclusions, endorsements

Provide Input on Coverages

Data Needs

Data Availability

Decide on Methodology
Filing Preparation

Loss Cost Filing

Conform to State Regulations/Statutes

Respond to Regulatory Concerns
Statistical Impact

Determine Future Ratemaking Statistical
Needs

Balance Data Needs with Practicality/Cost
of Data Collection

May Collect More Detail Than Used in
Rating (e.g. territory, individual class)

Discuss with IST & Insurer Panels
Marketing/Sales Plan

Decide on Target Customers

Decide if Provide any Additional Services
 Risk Management Services, Advisory Policy Application
& Underwriting Guidelines

Prepare Announcement Material for
Customers

Coordinate with Internal Staff
 Sales, Marketing, Finance

Follow-up/Feedback
Future Ratemaking

Develop/Modify Report Systems

Monitor Statistical Data

Determine Ratemaking Methodology for
Updating Pricing


short - term

long – term
Modify Pricing for Coverage
Enhancements
Use of Sophisticated Analytics in
Ratemaking

Use of multi-variate modeling software

Access of current rating variables and/or
new variables
Multi-Variate Software Issues

Evaluate different software products
 Flexibility/options
 Customer support/Reputation of firm
 History of software
 Allow for trial period
 Handling of large volumes of data
 Computer needs of software

Train Staff on Software/Modeling
Techniques
Data Cleansing Issues

Use of current ratemaking data
 Sufficient volume for multi-variate analysis?
 Cleanse data for more detailed multi-variate
analysis

Use of new variables
 Matching of ratemaking data to new variables
 Data cleansing of new variables
Modeling Issues

Selection of modeling method

Selection of variables, parameters of
model

Evaluate diagnostics of model