COM - 29
Package Pricing for Small Commercial Accounts
Roy G. Shrum
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Ratemaking Philosophy
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Needed revenue estimate is future oriented
All costs need to be covered
Internal targets need to be satisfied
Optimal growth in targeted areas
Steady, non-disruptive, rate actions
Rate change is one of several levers to
address unfavorable results.
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Unique Small Package Issues
• Expansive collection of coverages
– changing conditions
– creative interpretation in unintended ways
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Evolving marketplace
Indivisible premium
Rating Parameters
Loss characteristics
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Unique Small Package Issues
Expansive Coverages
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$25,000 Accounts Receivable
$25,000 Sewer/Drain Back-up
$1000 Antennae & Satellite
Business Inc. -actual loss
sustained
$10,000 Debris Removal
$5,000 Deferred Payments
$10,000 Employee Dishonesty
Functional Replacement Cost
Full Coverage Glass
$10,000 Money & Securities
$500,000 Newly Acquired Bldgs.
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$10,000 Off-Premises Power or
Water Failure
$5,000 Patterns, Dies, and Molds
+50% Peak Season Protection
$25,000 Property - Other
Locations
$5,000 Signs - all-risk coverage
$5,000 Tenants Lease Protection
$25,000 Valuable Papers
Premises Liability
Products Liability
$10,000 Medical Expenses
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Unique Small Package Issues
Evolving Marketplace
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Store Owners Endt.
New Select Custom Pkg.
Car Wash Program
EPL Coverage Form
Livestock Marketing Program
Recyclers Custom Program
Power or Communications
Failure
Grocers Advantage Endt.
Food Contamination Endt.
Tire Retreading and Siping Form
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New Leisure Camp Program
Mini-Warehouse Coverage Form
Funeral Directors Prop.of Others
Artisans Advantage
Apartment Association Program
Home Business Insurance Plan
Car Wash Direct Deductibles
Form
Auto Services Program
RV Dealers Program
Day Care Center Program
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Unique Small Package Issues
Evolving Marketplace -- Response
• Ear Piercing Liability
– Relationship to other classes, underwriting controls, nature of risk
• Physicians Equipment
– Bureau loss costs, competitors, relationship to other options
• New Coverage Extensions
– Build into base or new optional coverage?
• Credits/Discounts
– Does justification continue?
– Verifiable at inception… verifiable after inception
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Unique Small Package Issues
Indivisible Premium
• Loss Profile
– Template counts and amounts
• by size
• by major (and minor) coverage component.
– Current aggregates and state
• Book Profile
– Class, years in business, building ages, protection class, financial
scores, line mix, pricing tier, optional coverage purchases
– Ratable and non-ratable elements.
– Underwriting insights into importance
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Unique Small Package Issues
Rating Parameters
• Class
– Rate Groups
• Homogeneity
• Underwriting controls
– Relationships between
• Territory
– Underlying demographic changes
– More localized exposure patterns
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Unique Small Package Issues
Loss Characteristics -- Trend
• Economic Drivers
– Property
• Nonresidential Structures Price Index (BEA)
• PPI -- Lumber , Metal Products (BLS)
• Business Durable Equipment (BEA)
– Liability
• WC Medical Cost Index (NCCI)
• CPI -- Total Medical, Hospital (BLS)
– General
• Core CPI ex Food & Energy (BLS)
• Consumer Confidence Index
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Unique Small Package Issues
Loss Characteristics -- Trend
• Bureau
– Econometric, internal
– Applicability as to:
• size of underlying exposure
• nature of exposure
• mix of inherent coverages
• Peer Competitors
– More applicable but unique company characteristics
• Internal Data
– Volume
– Mix of inherent coverages
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Unique Small Package Issues
Loss Characteristics -- Trend
• Bureau Annual Severity Changes:
Line
Yr.1
Yr.2
Yr.3
Yr.4
Yr.5
Fitted
BOP -4.6% 3.9% 2.1% -3.2% 3.4% 0.1%
OL&T -0.4% 3.6% 0.5% 7.4% -6.4% 2.0%
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Unique Small Package Issues
Loss Characteristics -- IBNR
• Expectation by Program
• Reconciliation to Financial Reports
• Size of Risk Considerations
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Unique Small Package Issues
Loss Characteristics -- IBNR
• Bureau Loss Development Links:
Line
15 to 27
27 to 39
39 to 51 15 to Ult.
BOP Liab.
1.349
1.18
1.077
1.738
OL&T
1.387
1.218
1.089
1.943
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