Personal auto insurers make the most use of predictive modeling techniques, while those at commercial carriers employ them less, according to a poll.

That finding was made in an online survey of 90 executives at 81 property and casualty carriers, conducted by Towers Perrin consulting firm.

Seventy-six percent of the personal lines carriers said they view the tool as essential, Towers Perrin said. The firm noted that while only 56 percent of standard commercial carriers said modeling was important, that group of insurers is taking a closer look at predictive modeling.

Predictive modeling uses advanced statistical modeling techniques with critical data related to individual policyholders, competitors, marketplace conditions and customer behavior, to determine optimum pricing levels.

The survey found current use of predictive modeling varies significantly by business segment¾led by personal auto at 68 percent and homeowners at 42 percent.

Many commercial lines carriers responding said they are investing in predictive modeling across all segments, including commercial auto (44 percent), workers’ compensation (43 percent) and commercial property (36 percent).

According to Towers Perrin, the poll findings “indicate a dramatic evolution in insurers’ pricing strategies, as historically, many firms relied solely on traditional cost-based pricing approaches to set prices.”

The company added, “While cost is still a critical consideration, robust modeling techniques are helping carriers reflect an ever-changing competitive landscape and customer behavior in their pricing structures.”

Klayton Southwood, survey co-author and Towers Perrin senior consultant, said, “As personal lines have paved the way, we believe commercial lines will move faster and with more effectiveness, given the lessons learned and the current environment. “The predictive modeling trends we’ve seen in property and casualty are consistent with those beyond insurance, where predictive modeling is growing in such diverse areas as government oversight, health care, education and myriad others.”

Fifty-one percent of respondents in the survey, when asked what primarily drove their firm’s use of predictive modeling, said profitability considerations.

The second reason cited most often was competitive pressure, 22 percent. Other reasons mentioned included growth considerations, good business practices and regulatory changes.

Executives in the survey said they are using, or plan to extend their use of, predictive modeling beyond rating/pricing and underwriting/risk selection, most notably in the areas of claims (65 percent), catastrophe exposure (62 percent) and marketing (51 percent).

“The vast majority of personal lines carriers see rating and underwriting sophistication as critical¾or at least very important¾as our research shows that there exists a strong relationship among rating, pricing, underwriting, risk selection sophistication and financial results,” said Brian Stoll, Towers Perrin senior consultant and co-developer of the survey.

Mr. Stoll added, “The synergies that exist between personal and commercial lines suggest that predictive modeling will quickly become more pervasive among all types of carriers.”

Among other key findings from the survey:

Leading the list of hurdles for increasing rating or underwriting sophistication are challenges associated with data (29 percent), followed by production systems (20 percent) and cultural issues (15 percent).

Towers Perrin found that most medium and larger carriers have full-time predictive modeling units devoted to rating/underwriting modeling support. Small carriers tend to devote five or fewer full-time employees, while larger carriers dedicate at least six.

The survey was conducted from April 21, through June 6.

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