Towers Watson just released its annual survey on predictive modeling with some notable results.
The percentage of U.S. property/casualty executives reporting a positive impact on profitability has dramatically increased over the past six years, while the breadth and depth of predictive modeling applications has grown.
Some 87 percent of property/casualty executives report that predictive modeling had a favorable impact on profitability in 2014, an increase of eight percentage points over 2013. The increase continues a pattern of growth over several years, and is up significantly from 57 percent six years ago.
A positive impact on rate accuracy helps explain the boost in profits, Towers Watson said.
In fact, the percentage of carriers citing a positive impact on rate accuracy has increased every year since 2010, when 70 percent cited a positive impact. By 2014, 98 percent of insurers reported that predictive modeling has improved their rate accuracy.
More accurate rates also positively impact loss ratios, which have improved in parallel, according to p/c insurance executives. In 2014, 91 percent cited the favorable impact of predictive modeling on loss ratios, an increase of 14 percentage points over 2013.
The survey shows the use of predictive modeling in risk selection and rating/pricing has increased significantly for all lines of business over the last year, continuing a long-term trend.
For personal lines, auto saw the largest increase with 97 percent of participants saying they used predictive modeling in underwriting/risk selection or rating/pricing in 2014, up from 80 percent in 2013 — a 17 percentage-point increase.
Even more noteworthy is the increased use of predictive modeling in commercial lines.
For commercial property/commercial multiperil (CMP)/business-owner peril (BOP) as well as commercial auto the use of modeling increased 19 percentage points — to 51 percent and 41 percent respectively, year-to-year.
But it was specialty commercial lines that saw the largest increase, where 44 percent of p/c executives said they use predictive modeling in risk selection and rating/pricing in 2014, up from 13 percent in 2013 — a 31 percentage point increase.
While the survey suggests that insurers are increasingly comfortable with predictive modeling and using it in a growing number of capacities, more progress is still possible, according to Towers Watson.
Treating data as an asset and more effectively using predictive modeling applications to improve claim and other functional results could make a significant difference in the profitability of insurance companies, it suggests.
More on the survey results in this Insurance Journal article.
Towers Watson gauged the views of 52 U.S. insurance executives in personal lines and commercial lines carriers for the survey.