COM 29 Package Pricing for Small Commercial Accounts

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COM - 29 Package Pricing for Small Commercial
Accounts

• Roy G. Shrum

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Ratemaking Philosophy

• 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
• Evolving marketplace
• Indivisible premium
• Rating Parameters
• Loss characteristics

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Unique Small Package IssuesExpansive Coverages

• 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.

• 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 IssuesEvolving Marketplace

• 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

• 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 IssuesIndivisible 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 IssuesLoss 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

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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