What kinds of benefits are possible from predictive models in P&C underwriting? Try a 15 percent expense reduction and a 4-point reduction on the loss ratio.
Predictive models in property and casualty underwriting
In the push for growth, property and casualty companies tend to focus on loss ratios. While this is a solid strategy, insurers may be missing out on broader premium growth and expense reduction benefits that come from applying predictive models.
Even then, focusing exclusively on predictive models may not be enough. High-performing businesses will stop to consider how well the model fits with business needs. Predictive models are most useful when they integrate with business solutions, enabling:
- Process automation opportunities.
- Faster speed of change when models are updated.
- Flexibility to adapt and apply predictive scores more broadly.
Consider the benefits that come from applying predictive models in a smart way: insurers can achieve up to 15 percent expense reduction and a four-point reduction on the loss ratio. Other benefit drivers are shown in Figure 1, including:
- High percentage of underwriting decisions untouched.
- Reduction of data acquisition costs.
- Reduction of administration and selling expenses on a per-policy basis.
- Faster speed-to-market for underwriting and pricing changes.
- Timely cross-selling of products.
For more information, download Predictive Analytics 2.0: Effective integration of predictive modeling