View Full Version : which is harder to price?
03-14-2002, 07:37 PM
Which is harder to price: commercial lines or personal lines? In which line of business would more actuarial/statistical analysis be required?
03-14-2002, 08:57 PM
Neither is intrinsically more difficult to price. Every line has its own "quirks" that make it a challenge. As to statistical techniques in the traditional ratemaking arena, you probably won't find too many sophisticated applications that work well in any line unless you're working at a bureau or a very large insurer. You'll need a fair amount of savvy to comprehend circulars from ISO and the NCCI, but that's where the advanced statistics stop for many actuaries.
03-14-2002, 11:25 PM
I'm going to have to go with Commercial.
Since we all generally have a place to live and a car to drive, we are intrinsically more familiar with personal lines insurance. Commercial lines seems a little more vague and intangible.
Aside from the potential for catastrophes, personal lines don't have the severity threat that a WC claim can have. Personal lines loss experience has higher credibility and results are a bit easier to predict. The product is less complex too.
I'm sure my comments are very generalized and others will find worthy disagreements.
<font size=-1>[ This Message was edited by: Anonymouse on 2002-03-14 23:27 ]</font>
Bob the Dog
03-14-2002, 11:47 PM
But the need for precision is greater in personal lines, where it's less likely that the underwriter will f-in credit the rate to half of what you set.
03-15-2002, 10:02 AM
03-17-2002, 11:53 AM
I have priced both. Commercial lines is more difficult because of the broad range of risk. Personal Auto and Homeowners risk tend to be very similar, while commercial risk are vastly different.
That being said, NCCI and ISO do most of the hard dirty work for commercial lines, so pricing on a company basis is not very difficult.
The one biggest difference I see between the two lines is that personal lines is much more competition oriented, where are commercial lines rate seem to be set more on actuarial principals. For that reason, I enjoy setting commercial lines rates more the personal lines rates.
03-18-2002, 04:37 PM
Thereby letting the underwriters do the messy work of accounting for competition, and blaming them for the results? :razz:
08-04-2005, 06:36 AM
What is commercial lines and what is personal lines? Can you give some examples?
Auto, home are personal lines?
Liability insurance are commercial lines?
08-04-2005, 08:36 AM
This isn't a complete list, but:
Personal Lines: Personal Auto, Home, Personal Excess Liability/Umbrella
Commercial Lines: General Liability, Products Liability, Medical Malpractice, Commercial Automobile, Commercial Property, Workers Compensation, Commercial Umbrella
08-04-2005, 08:41 AM
Any line of business that lacks data or is low frequency/high severity or is very long tailed will be harder to price with the same accuracy as high data/high frequency/short tailed business.
But it doesn't mean the job is harder or easier. People expect more detail form the "easier" pricing model.
08-04-2005, 08:48 AM
Basically "personal lines" involves insurance sold to individuals, "commercial lines" involves insurance sold to businesses.
As others have said, the work that you will do in one or the other may be more or less difficult, but Commercial lines is far more difficult to develop an accurate rate for. The risks are not NEARLY as homogeneous and data cells of reasonably similar risks can get ridiculously small.
However, I don't put in nearly as much effort in a commercial lines rate filing as I do in a personal lines filing. The value of my database isn't great enough to do more than a very high level analysis. For details, I have to rely on ISO, on market surveys, etc. For personal lines, I have more to work with, so I do more work! Also, regulatory scrutiny is much higher in personal than commerical lines.
08-04-2005, 10:49 AM
Personal Lines: Auto; Home (including Renters/Condos, Federal Flood); "Toys" - boats, rv, atv, motorcycles, etc.; what I like to call "incidental landlords" - you own a small number of rental units, usually less than 20, and no more than 4 or so in each building location; floaters for things like jewelry; Personal Umbrella.
Commercial: Pretty much anything else. :D
Don't leave out the fact that your average regulator/state employee can't imagine any product more complex then their own homeowners policy, so you get silly questions like "Please report the number of policies by ZIP code."
"Gosh, Mr. Commissioner, we only write one policy, but it covers every McDonald's in the country. There are 300 in your state alone. What did you mean? Should we tell you 1 or 300? And Oh, buy the way, most of the companies won't ask for clarification so you'll get a mixture of 1's and 300's from whoever writes Burger King, Wendy's, Subway and so forth, leaving you with junk as the answerer to your silly question." :rant:
08-07-2005, 07:51 PM
I'd have to say commercial lines. I think the available data for commercial lines are generally more heterogeneous and more limited than personal lines data. Commerical risks can be so different from one another, and yet the pricing methodologies used in commercial lines are not yet as refined as in personal lines (especially personal auto). There might also be greater variability in the results we can expect from commercial risks, probably because of the heterogeneity of the data used in the prior pricing analysis.
Commercial lines would also mean specialty lines, where data availability is highly limited; oftentimes industry data are not helpful in the analysis because the "type of risk" that the industry covers by definition is too general.
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