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Businessowners (BOP) Class Plans

This seminar conducted by Robert J. Walling, FCAS, MAAA, focuses on traditional Businessowners Policy (BOP) rating features, addressing the complexities of underwriting, class structures, and pricing strategies that have evolved since 2003. Key discussions include territory definitions, classification of occupations, and the impact of various underwriting factors on pricing. The seminar emphasizes the need for improved predictive accuracy and reduced reliance on discretionary underwriting, alongside insights into innovative solutions and practices for optimizing BOP pricing and risk assessment.

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Businessowners (BOP) Class Plans

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  1. Businessowners (BOP) Class Plans 2003 CAS Ratemaking Seminar March 27-28, 2003 Robert J. Walling, FCAS, MAAA

  2. Traditional BOP Rating Features • Large, traditional territory definitions • Clustering of occupations • Clustering of fire protection classes • Simple approach to amount of insurance (AOI) • Significant U/W discretion (Schedule credits) • Bundled (composite) class rate

  3. Businessowners Problems • Market has disagreed on: • Which classes to cluster/target • Construction relativities • Territory definitions • Occupancy factors (Malls, Single Occupancies, Multiple Occupancies w/ Restaurants) • Many rating factors available but not incorporated into rating sequence • U/W Tiers & Credits Gone Amok

  4. BOP Relativity Differences

  5. BOP Relativity Differences

  6. How can credits be abused? THE HIGHEST NET RATE IS OVER FOUR TIMES THE LOWEST!!

  7. BOP Pricing Enhancements • Revise class factors • Revise territories using zip codes • May have impact similar to Homeowners on Protection • Create more sound AOI curve • Improve predictive accuracy of net pricing • Reduce reliance on underwriting discretion • Add financial info and other insured characteristics • Add rating/tiering factors for application information currently not rated

  8. BOP Solutions – What are Companies Doing? • Many use ISO class codes with class deviations or individual class factors • Some have homeowners-like amount of insurance curves • A few use tiering programs like Personal Lines underwriting guidelines to use additional app information

  9. BOP Pricing Enhancements • Revise class factors • Revise territories using zip codes • May have impact similar to Homeowners on Protection • Create more sound AOI curve • Improve predictive accuracy of net pricing • Reduce reliance on underwriting discretion • Add financial info and other insured characteristics • Add rating/tiering factors for application information currently not rated

  10. Approaches to Improving Net Pricing • Status quo • Build a better underwriter • “One and Done” tiering • One way factors (e.g. “Mall Credit”) • Multivariate U/W scoring systems

  11. How to Build a Better U/W • Improve accuracy of manual rates by class • Especially for “flow” classes (office, book store, etc.) • Automation increases rating algorithm flexibility and ease of implementing new rating factors • Focus attention on larger risks and classes • Has expense implications as well • Treat U/W as a pricing variable! • Accentuate the positives! • Train, remediate, and reunderwrite the negatives

  12. BOP Regional Underwriting Review

  13. BOP Solutions – Underwriting Scoring Systems • Take data off the application that is not rated: • Percent Occupied • Elevators • Years in Business • Years of Same Mgt. • Age of Building • Updated Systems • Alarms • Sole Occupancy • Computer Back Ups • Hours of Operation • Building Height • Deliveries? • Swimming Pools • Franchise? • Safety Program • # of Employees/Leasing • Out of schedule credits and into rating

  14. Underwriting Scorecard Example

  15. Underwriting Scorecard Example

  16. Underwriting Scorecard Example

  17. Problem with his Approach - Interactions and Overlaps

  18. Interactions Example

  19. Underwriting Scorecards Reflecting Interactions • Multivariate analysis allows the modeling of interactions and modern policy management systems facilitate the implementation of more complex tiering systems

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