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Old 12-14-2017, 10:08 PM
Hari Seldon Hari Seldon is offline
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Default what to propose when neither option is good

Hello,

I had a difficult situation at work recently, Id love to know how the AO community would have handled it.

I was asked if a countrywide proposal was appropriate in a smaller sub region.

Most of the initiatives were consistent with the needs of the smaller sub region, but not all. So if I propose making all of the changes, I allow the decision makers to nitpick things like, for rating variable A level 3, were indicating a rate reduction, but the CW proposal wants us to raise rates, why would I want to do that? I didn't have a solid response.

On the other hand, the in order to convince the decision makers higher ups, there needs to be a compelling case to deviate from the CW proposal.

So on the one hand, there were some inconsistencies with the the sub region, but there was also not a strong enough business case to deviate(in terms of improvement on loss ratio performance to justify the IT and other internal resource costs.)

This was difficult for me. Im wondering if I should have not focused on individual segment needs, and just focused on overall improvement metrics from implementing the CW approach, and possibly not shown any segment level information.

How would you have handled this situation?

Mathematically,

Hari Seldon
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Old 12-15-2017, 09:29 AM
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yoyo yoyo is offline
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i suspect that there's enough variability in the data for rating variable A level 3 in a smaller sub region with less credibility that you could safely substitute the CW proposal. i'm just spitballing. what we do isn't rocket surgery. just because the model output is X for some segment doesn't mean that it's the only reasonable answer.

don't fall in love with the model and/or the math and ignore the bigger business picture
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Old 12-15-2017, 10:13 AM
PAC PAC is offline
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Short answer: in general, it depends on the situation

Long(er) answer: see the CAS SOP Regarding Property & Casualty Insurance Ratemaking

Quote:
I. Definitions

Ratemaking is the process of establishing rates used in insurance or other risk transfer mechanisms. This process involves a number of considerations including marketing goals, competition and legal restrictions to the extent they affect the estimation of future costs associated with the transfer of risk. This Statement is limited to principles applicable to the estimation of these costs.

...

Principle 1: A rate is an estimate of the expected value of future costs.

Principle 2: A rate provides for all costs associated with the transfer of risk.

Principle 3: A rate provides for the costs associated with an individual risk transfer.

Principle 4: A rate is reasonable and not excessive, inadequate, or unfairly discriminatory

...

IV. Conclusion

The actuary, by applying the ratemaking principles in this Statement, will derive an estimation of the future costs associated with the transfer of risk. Other business considerations are also a part of ratemaking. By interacting with professionals from various fields including underwriting, marketing, law, claims, and finance, the actuary has a key role in the ratemaking process.
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Old 12-15-2017, 10:39 AM
Helen Sass Helen Sass is offline
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I work in consulting, and I often say that my job is to present necessary and sufficient information so my client can make a decision.

This isn't just "caveat everything to CYA". The work we do is complicated enough that a simple yes or no answer to a question like "is this proposal appropriate?" is usually not an appropriate response.

Mine would either be "Yes, but..." or "No, but..." and make the caveats as simple as possible.
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Old 12-17-2017, 03:53 PM
Hari Seldon Hari Seldon is offline
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Quote:
Originally Posted by yoyo View Post
i suspect that there's enough variability in the data for rating variable A level 3 in a smaller sub region with less credibility that you could safely substitute the CW proposal. i'm just spitballing. what we do isn't rocket surgery. just because the model output is X for some segment doesn't mean that it's the only reasonable answer.

don't fall in love with the model and/or the math and ignore the bigger business picture
Thanks for the advice.

I think what I'd failed to mention is that I'm not sure there was a win in this situation available too me.

There wasn't overwhelming evidence to deviate from the countrywide model, and there some of the countrywide proposals required raising or lowering the price where the sub region based data indicated doing the opposite for some segments.

How would you guys make a proposal that a countrywide recommendation is appropriate for a sub-region, knowing that not all movement is directionally consistent for the sub-region?

thanks,

Hari
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