While most insurance companies believe that predictive modeling can be an effective and accurate way to rate their insureds, they may not be sure how to implement a predictive modeling system.
That is why Insurance Services Office (ISO) launched ISO Innovative Analytics (IIA), which was created to help companies with the execution of a predictive modeling program. ISO has also formed a joint marketing relationship with Willis Re to educate carriers about the ISO Risk Analyzer products.
ISO brings actuarial statistical modeling expertise into ISO's core products. The analytics began with personal auto and homeowners and have branched into commercial auto as well. IIA is also in the process of researching property and liability analytics and hopes to launch models for those segments in the next year or two.
Marty Ellingsworth, president of IIA in San Francisco, says ISO's customers have two options when it comes to using their predictive modeling systems: adopt the full rating plan with ISO's expected loss costs or use ISO's predictive modeling baseline to file a company's own product, customized around its book of business.
"It is a very expensive and lengthy process to try and build your own [predictive] model and a lot don't end in success, so this is a low-risk, high-reward opportunity for main street carriers," he says. "It is an off the shelf ready to go rating plan – regardless of where they are in company plans."
Ellingsworth says the analytics go to a finer level of detail than any other ISO product, and carriers are testing and finding that the analytics add value to their systems.
"The idea of risk based pricing is every risk has a price, not a definite limit," says Ellingsworth. "If there is a unique characteristic that is off the charts, a company has its own guidelines for that."
ISO and Willis Re's new non-exclusive joint marketing relationship will help get the word out about the new ISO Risk Analyzer products.
Willis Re will concentrate on marketing to small and mid-size carriers and has already received a positive response from its carriers.
"For Willis, the predictive analytics and assisting clients with these is a value-added service," says Bret Shroyer, senior vice president of Willis Re in Minneapolis, Minn. "We feel strongly there is a need and saw there was a hole for [predictive modeling programs] that fit well with small and mid-size carriers. We feel it's a great product for our clients to look at and a very cost effective way for a carrier that isn't currently using predictive analytics to dip their toes in the water."
Ellingsworth says this relationship benefits Willis Re as well. "It certainly gives them a vantage point of being a trusted advisor to their client base, because they bring info to customers that they may not have known about."
According to Shroyer, there is a lot of curiosity among its carrier clients on predictive modeling, but many aren't prepared to take action on implementing a system.
"For most, it's a lack of knowledge on exactly what benefits predictive analytics might bring, how much it might cost, and how it can be effectively implemented," he says. "We are working with ISO to answer those questions for our clients and that has led several of them to take action, initiating discussions directly with ISO."
Ellingsworth says the relationship with Willis Re has helped them reach a broader market than it could access through its direct sales force.
"Getting the word out that ISO is relevant and strong in the predictive modeling game is something we still struggle with," he says. "We are letting the world know we are here, you can buy us and use us and this is a competitive leapfrog of trying to shoehorn your own smaller data sets into a competitive framework. That is a message that Willis got right away and can take that to their customers."
Shroyer says they are educating carriers by offering internal webinars where ISO has been able to introduce products to Willis Re staff and the brokers. Willis Re then works with the client to guide them as they decide if they want to purchase the product from ISO.
Willis Re does not have any vested interest in an ISO transaction with its carriers, so there is no sales push on Willis Re's part. However, one advantage of the marketing relationship is ISO will also give carriers referred by Willis Re a discount of 20 percent off the shelf price.
As carriers continue to face more and more competition, fine-tuning their rating structures will become critical to acquiring more business, and Shroyer says ISO's Risk Analyzer products are one way for them to get started.
"A carrier that has never used predictive analytics will see immediate value out of ISO products that may filter through to other applications internally and help them to move to a custom model," he says.
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