2007 CAS SPRING
MEETING
THE BUSINESS CASE FOR
PREDICTIVE MODELING
BETH FITZGERALD, ISO
Accomplishing Business Goals
•
•
•
2
Project Management
Implementation
Future
Project Management
• Determine business processes that support
strategic goals
– Underwriting decisions
– Pricing decisions
• Develop project plan aligned with strategic
goals
– Model Building
– Technology Development
– Implementation Phases
• Determine project needs
• Monitor actual vs. planned costs/milestones
3
Project Needs
• Team Skills
– Data management
– Analytical/statistical
– Technology
– Business Knowledge
• Data
• Statistical Tools
• Computer Capacity
4
Modeling Process
Data Gathering
Data Linking
Data Cleansing
Evaluation
Business
Knowledge
Determine
Predictive Variables
5
Analyze
Variables
Modeling
Business Questions
• What goals are you trying to achieve?
• What results do you expect to see?
• How will you know if the results are
reasonable?
• How do you ensure sufficient knowledge
transfer to business staff?
6
Model Input/Output
• Model input considerations
– Access to data
– Robustness/quality of data
– Timeliness of refreshed data
• Design Model output for users
– Definition of output – expected loss ratio, pure
premium, loss ratio relativity?
– Provide support for output – reason codes
7
Business Implementation of Model
• Model usage determined by strategic goals
– Underwriting risk decision
– Pricing of risks
– Support of market growth
• Integration of Model into business workflow
decisions
– Consistency in underwriting/pricing decisions
– Compliance with regulations based on
implementation decisions
8
Implementation of Model
Workflows:
• Underwriting
–
–
New Business
Renewal business
• Rating
–
–
9
Pricing
Coverage Adjustment
Implementation of Model
• New Business decision options
–
–
–
–
Write risk
Request additional info on risk
Decline risk
Adjust price/coverage
• Consider model output alone or along with
other information available from application
• Model output needed within seconds for quick
decision
10
Implementation of Model
• Renewal decision options
– Automatic renewal
– Flag for non-renewal
– Adjust coverage level for risk
– Adjust pricing for risk
• Initial Year
– review all in-force policies on weekly or monthly
basis
• Subsequent years
– establish schedule for reevaluation based on
specific underwriting guidelines
11
Implementation of Model
Rating
• Model O/P represents relative loss ratio
factor
• Determine rating selections
• Determine rating process
– Modify application of IRPM plan
– Implement new rating factors based on
Model
– Tier risks into different insurers within
insurer group
12
Technology Development
•
•
Incorporate business implementation decisions
Decide on how Model will be accessible
electronically
– Web-based interface
– Integrated into existing workflow
– Batch processing
•
Develop/Modify Systems
– Phase-in technology
•
•
13
Model uses information from a third-party vendor
Determine I/P and O/P criteria
Rollout Implementation of Model
• Prepare Announcement/Training
Material for Internal & External
Customers
• Coordinate Implementation Phases
• Monitor Feedback/Adjust
Implementation
• Monitor Results against Strategic
Goals
14
Future of Predictive Modeling
• More refined rating plans
– Industry-sourced or internally developed
– Combination of internally-developed & industry-
sourced risk component variables
• Ongoing updating and maintenance of Models
– Refresh data
– New data sources/variables
– New tools/techniques
– React to new market environments
15