Over the course of a year, many subtle changes are typically made on a given portfolio, some knowingly instigated like changes to rating relativities or the target market, and others that are part of the normal ebbing and flowing of the cycle, such as unintended mix changes through competitor activity, or a deterioration in claim trends. If you are an insurer overseeing delegation from a distance, then the ability to monitor the impact of these adjustments (both the intended and unintended ones) can be very difficult indeed. The critical observation needed is to ensure that emerging results are in line with expectations.
Hopefully though, as all these changes impact a portfolio and start to earn through, the water remains at a constant temperature, but ‘hopefully’ isn’t really good enough. Leave it until the end of the year to find you have a loss making scheme can be the ‘boiling point’ where insurers withdraw capacity and the MGA therefore becomes the unfortunate frog.
Organisations (MGAs and insurers alike), that take portfolio management seriously are constantly taking the temperature of the water (or loss ratio) is starting to get a little hot, then more cold water (otherwise known as profit improvement actions) are added at the right time preventing the water from ever reaching the boiling point scenario.
This can be difficult to achieve for many reasons:
The good news is that all of the above points can be easily addressed through having the right tools in place. An effective portfolio management system makes the analysis quick and easy and can work around perceived data quality issues with some relatively painless upfront planning and structuring. In our experience we typically find that the data quality is rarely the main issue that prevents solid portfolio management from taking place.
If resource remains a challenge, then it is easy to back this up with external support which comes hand in hand with a portfolio management framework and software. The cost is of this more than pays for itself when you consider the loss ratio improvements that are made (typically in the region of 2 – 5% pts). Troubleshooting individual portfolios is often a very successful process to undertake on more problematical schemes – the actions identified coupled with the implementation and monitoring plan can deliver double digit improvements.
Portfolio management is a process, not a one-off event, therefore an additional benefit of having the external expertise on hand is to support that continuous process. When you combine with this the focus an external partner can bring in analysing and delivering the insight across the full breadth of a portfolio (financial, underwriting, operational or otherwise), you have a very powerful and value enhancing tool.
The moral of the story is that portfolios don’t regulate the temperature themselves. They require constant analysis and adjustments to ensure they don’t reach boiling point. So, whatever you do, however you do it, don’t become the unfortunate frog!
There has been a lot of speculation recently around the use of AI in insurance and how this signals the death knell for Underwriters. Having mopped up the coffee that I spat out and checked my life insurance provisions, this got me to thinking. Surely not all underwriters? But if not, then who?
The ineffable question of the “effs”. What should a business aim for – and more specifically, for us, the underwriting function in an insurance business – efficient operations or effective decision making?
Game theory aims to shed light on outcomes where multiple actors operate. Dry academe often assumes “ceteris paribus” even in social sciences, but in the real world when we are trying to anticipate the outcomes of decisions one actor makes it is essential to consider the possible and likely responses of other actors…
In various parts of our lives, we are examined and tested to grade our ability and knowledge, be that driving tests, ‘A’ levels, or piano exams.
And so it is with the insurance industry. Boards and regulators are increasingly pushing for demonstrable oversight. This is especially true in the field of Delegated Authority (DA)…
Managing General Agents (MGAs) provide insurers a broad opportunity for profitable growth. Operating in niche sectors with lean efficient models and providing customers with products that they often find hard to come by in the mainstream. All of this is wrapped up with the relevant expertise and providing insurers with access to markets that…
As 2022 was drawing to a close, insurers across the UK were starting to look at their results, keeping their fingers, toes and everything else that they could, crossed in the hope that December would fizzle out in a whimper.
But alas it was not to be as temperatures plummeted and the industry suffered…
What use statisticians and actuaries when the world is being transformed by modern data-analysis techniques? What hope for clunking humans in the era of Big Data (Facebook sells data which influences US presidential elections), of Artificial Intelligence (China can identify disliked racial groups through automatic facial recognition technology)…
Catastrophes – natural events where one “system” (wind, earthquake etc) causes multiple insurance claims in one go – are difficult. Much else in insurance pricing is subject to conceptually simple averaging-over-time, but cats are different. You can’t take a 5 or 10 year history of natural-peril losses and assume you have an accurate view of exposure to catastrophes…
In part 1 of this triptych on insurance pricing we looked at Technical Price (TP): what must be covered over the long run to make reasonable profits. I finished that note by considering TP in the context of the market. Here, I take this theme further and explore more how to think strategically about pricing.
This note covers the fundamentals: the three building blocks of a technical price and a note on the role technical price plays. It is followed with a deeper look at pricing strategies. Finally we consider a knotty topic, cat(astrophe) pricing, in particular the use of cat models to inform the price.
On 26th September 1983, at the height of the Cold War, Soviet missile monitoring picked up apparent signs of five nuclear missiles launched from the US. Retaliation was the default planned reaction.
Charles Dickens opened A Tale of Two Cities with these lines, contrasting calm enlightenment London with turbulent revolutionary Paris: “It was the best of times, it was the worst of times…
Calibrant was established to bridge a gap. The gap is that between MGAs and their carriers. And it finds many forms.