Insurance pricing is above all a matter of calculating risk.
Pleasanton, CA (PRWEB) July 13, 2016
In 2015, the top 25 groups and companies in the US property and casualty insurance industry accounted for 64% of total premiums collected, according to figures from the National Association of Insurance Commissioners. The concentration of business among the top 25 was even higher in certain specific coverage areas, such as homeowners multiple peril (75%), workers compensation (69%), and private passenger auto insurance (84%).1
“Even that doesn’t tell you the whole story,” says Michael Macauley, CEO, Quadrant Information Services, a leading supplier of pricing analytics services for property and casualty insurance companies. “If you take a closer look at the NAIC numbers, the top five carriers have 47% of the market in homeowners insurance, 28% of workers compensation, and 54% of private passenger auto. P&C coverage is a consolidating, brutally competitive industry, and it’s getting tougher every day.”
An important—in fact, decisive—factor in this ongoing struggle, says Macauley, is the increasing use of high-speed, high-power data analytics. “Insurance pricing is above all a matter of calculating risk. You may be able to increase your competitive edge by cutting your rate on the best business and still get a good return. You may also need to raise your rate for certain kinds of coverage—even above what a competitor is charging—to keep from booking bad risks at an inadequate price. To make those calculations accurately, you need a strong predictive analytics capability.”
Without predictive analytics, Macauley notes, insurers may be in danger of adverse selection, in which—unlike better informed competitors—they fall into a pattern of overpricing profitable, low-risk coverages (thus losing them to the competition) and underpricing higher-risk coverages. The result can be a kind of hollowing out of the portfolio, gradually replacing their best long-term risks with an ever-growing list of poor-performing accounts. Adverse selection can lead to a downward spiral in which loss ratios and loss costs increase, leading to a decision to raise rates. Increased rates lead to acquisition and retention problems, which lead to declining volumes. In the end stages, reserves become inadequate and the insurer is forced to downsize and narrow its focus, narrowing or eliminating the possibility of future growth.
“What’s happening in a situation like this,” Macauley says, “is that the insurer is unable to identify and price risk as accurately as its competitors. To prevent it from happening—or to reverse it if it’s already started—the insurer needs to supplement its own data with a broader, more stable and more predictive data set. Then to make effective use of that data, they need a presentation and analysis tool that’s easy and fast enough to use to support quick, accurate underwriting decisions.”
To give carriers that ability, Quadrant Information Services developed InsureWatch, a web-based predictive data source and analysis tool that allows property & casualty insurers to obtain highly accurate pricing information in a fraction of the time formerly required. With a few clicks of the mouse, users can take single or multiple quotes and modify them to be rated within each ZIP code in a state; develop on-the-fly rate strategies to improve competitive pricing; and compare competitors’ rate plans going back more than a decade.
Quadrant’s ability to provide that kind of information is based on:
- Industry knowledge. A pioneer in insurance industry data analytics, over 25 years Quadrant has worked with all the top carriers in the United States. Its rate set library is the largest in the nation.
- Accuracy. Quadrant’s close ties to the industry, and the trust in which it is held, enable it to obtain 60% of its data directly from large national carriers. These partnerships, along with a rigorous quality assurance program, allow it to deliver 99%+ rate accuracy.
- Innovation. InsureWatch is the latest in a long line of new technologies Quadrant has provided for the property & casualty industry during more than 25 years in the business.
“We know this industry,” Macauley says, “and we designed InsureWatch to meet a real and growing need. With this technology, companies can pinpoint the areas in which they are competitive and not competitive and quickly develop sound, workable strategies. They will be able to assess the competition and the market, understand where they have seen success, and where they need to shift focus to find more success. They’ll be competing with their eyes wide open.”
About Quadrant Information Services:
Quadrant Information Services, headquartered in Pleasanton, CA, provides pricing analytics solutions for property and casualty insurance companies. Quadrant gives actuary, product development, pricing, sales, and marketing personnel at its client companies—who include all the major insurance carriers in the United States— the data they need to make accurate, data-driven decisions. An industry innovator since its founding in 1991, Quadrant has provided the P&C insurance field with a long series of technological advances, most recently InsureWatch, the industry’s first cloud-based pricing tool, which allows the user to produce unlimited combinations of reports with the click of a mouse. For more information, and to learn why Quadrant is for insurance companies that are tired of losing the right customers and winning the wrong ones, please visit http://www.quadinfo.com.
1. National Association of Insurance Commissioners, March 28, 2016. http://www.naic.org/documents/web_market_share_160301_2015_property_lob.pdf