The merchants, captains and ship owners who congregated in Lloyd’s Coffee House in the late 1600s, where they discussed shipping and insurance deals, could not have predicted that their hunches around the pooling of risk would ultimately lead to the advanced risk selection taking place today in the commercial insurance industry.
Executive SummaryIf you give five commercial underwriters five underwriting files, how far apart will they price the accounts? For Zurich's Commercial Markets business, it's narrowed the price differential down to a target of +/-5 percent for 90 percent of the underwriters, according to President Craig Fundum. Here he explains Zurich North America Commercial's process for combining game-changing insights from predictive models into commercial pricing while continuing to empower underwriters to use their valuable judgment.
Insurers have continually looked to improve how to assess and price a given risk. Utilizing hunches and simple pooling evolved into the identification of risk characteristics and then to the development of guidelines of insurability.
More recently, commercial insurers have begun incorporating distinctive insights into sophisticated predictive models similar to what has been done by personal lines carriers. Generating insights is enabled by new technologies that allow insurers to utilize the years of underwriting and claims data they possess.
While the commercial insurance industry is moving to utilization of predictive models, pricing is still done, to a large degree, using longstanding guidelines coupled with individual underwriter experience. Not surprisingly, human bias can undermine the consistency that carriers require for strategic planning and profitable growth. So, how do we develop these game-changing insights and predictive models while continuing to empower our underwriters to use their valuable judgment?