Back in the day doesn’t mean what it used to. In most cases, that phrase refers to a time many years ago. But with the world changing as quickly as it is, back in the day can refer to just a few years ago or even last year.

Executive Summary

We live in a world where completing the mechanical steps of the insurance rate change process can be done with the "click of a button." But there's a lot more to actuarial ratemaking than mechanical steps. Here, Allstate actuaries Jamie Mills and Steve Armstrong describe the automation challenges of complying with Actuarial Standards of Practice and the processes of creating default assumptions for automated ratemaking and reviews of assumptions and initial outputs—before and after the click. The reviews create continual feedback loops between human and machine to ensure that pricing captures changing trends and state-specific regulatory nuances while minimizing the noise of one-time events and the possibility of systemic errors.

In the insurance ratemaking world, many things are changing with great rapidity, including but not limited to managers asking for more information about rapidly changing trends, requiring more review of profitability, technology advances, increased governance and more robust data needs.

The discipline of ratemaking includes two fundamental practices: profitability studies (e.g., pricing indications) to better understand future profitability, and determining what changes are necessary to achieve that profitability. Whether the company you work for is a single-state insurer, regional carrier, countrywide insurer—and whether it is a single line of insurance or portfolio of many lines of insurance—there is increased demand to understand current and future profitability in today’s ever-changing environment. In the last two-plus years alone, we have been asked to articulate the impacts of major events such as the COVID pandemic (and recent return to normal), numerous hurricanes and wildfires, increased labor and repair costs due to supply chain issues, and inflation.

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