MARSHALL & SWIFT / BOECKH Advisory Board An Analysis of Claims Frequency & Severity Predictors...

MARSHALL & SWIFT / BOECKHMARSHALL & SWIFT / BOECKH

Advisory BoardAdvisory Board

An Analysis of Claims Frequency & Severity Predictors

Property Characteristics Correlations

Claims vs. Property Characteristics

» 2



Objectives

» To correlate property claims to property characteristics

» To measure the claims dollar implications of differingproperty attributes

» To attempt to “Drill down” to implications such as age and location

» To determine if the correlations are reliable enough to be used in premium differentiation

» 3



Data Set

» Property records• 1.6 Million MS/B data records

• Full “RCT type” property characteristics

• 376,120 with ChoicePoint claims activity over zero dollar

» ChoicePoint records• Peril type and claims amount

• Some properties had multiple claims

• Claims occurred over a 5 year period

» 4



Claims Summary

» 4



Peril DescriptionClaim Count

% of records

Average Claim

AmountTotal Claim

Amount% of

Amount

Water 107,188 28% $3,283 $351,941,443 28%

Wind 72,349 19% $2,329 $168,507,751 13%

All Other Physical Damage 40,302 11% $2,173 $87,593,307 7%

Hail 32,817 9% $5,596 $183,630,856 14%

Theft 26,980 7% $1,745 $47,082,129 4%

Other 23,725 6% $2,155 $51,136,165 4%

Lightning 20,633 5% $1,541 $31,796,831 3%

Mysterious Disappearance 16,304 4% $1,740 $28,367,518 2%

Fire 15,514 4% $15,994 $248,124,090 20%

Extended Coverage Perils 6,170 2% $2,031 $12,530,391 1%

Liability 6,138 2% $6,162 $37,822,892 3%

Vandalism & Malicious Mischief 6,066 2% $1,809 $10,973,363 1%

Watercraft 1,120 1% $2,566 $2,873,910 0%

Dog Bite 814 0% $5,494 $4,472,014 0%

TOTAL 376,120 100% $3,901 $1,266,852,660 100%

» 5



Characteristics Measured – Property Records

Year Built

Number of Stories

Location

Foundation Type

Flooring Type

Siding Type

RoofType

» 6



Computation

» 6



Avg. Claim $

Claim Frequency Avg. sf

Loss Index

Premium Index

Variance Fav./<Unfav.>

Nationwide $3,368 23.51% 1,825 0% 0% 0

BASEMENT $3,283 26.16% 1,757 108% 96% (12)

CRAWL $3,137 23.42% 1,688 93% 92% (0)

SLAB $3,518 20.66% 1,906 92% 104% 13

» 7



1.121

0.87 0.9

1.1

0.8

0%

20%

40%

60%

80%

100%

120%

Basement Crawl Slab Turn ofCentury

1940 to1990

Post 1990

(Average Claim)

FindingsProperty Characteristics – Nationwide

= 100%

$3,368

foundation age

» 8



0.97

1.15

0.49

1.33

0.52

1.06

0%

20%

40%

60%

80%

100%

120%

140%

Carpet Hardwood Stucco onFrame

BrickVeneer

Clay,Concrete

Tiles

Comp.Shingles

(Average Claim)

FindingsProperty Characteristics – Nationwide

= 100%

$3,368

floor covering roof coveringext. walls

» 9



Macro Findings

» Two-story homes consistently incur more claims dollars than one-story homes, but premiums correlate relatively closely

» Age of home has a measurable claims implication and is not correlated with premium differentiation

» Floor covering also has a distinct claims implication

» Slab-on-grade is distinctly better than basements

» Multiple characteristics cause cumulative risk implications

» 10



Next Steps

» Expand this trial to a much larger dataset

» Use the larger dataset to generate deeper analysesat regional and state levels

» Increase statistical granularity for multiple factor analysis

» Annualize the loss data for inclusion in annualpremium assessment

» Determine the loss implications of “Underwriting Questions”

» Underwriting Analytics

» 11



Turning Data into Knowledge

What is Underwriting Analytics?What is Underwriting Analytics?• An analysis of a book of business with policy records

• Analysis of trends within the carriers records• Comparison of a given carrier’s records to an industry reference database• Comparison of a given carrier’s records to normative sources (Census, DQ, etc.)

• A set of recommendations based on above analysis and comparisons• Recommendations by home type (property characteristics)• Recommendations by home size or age• Recommendations by geography• Recommendation by source

• A wealth of data from your own portfolio of properties• Geocoding for underwriting against any criteria• Identification of areas of under/over insurance• Identification of Agent’s practices

» 12




Foundation Type ABC Insurance Data MS/B TES Data

Basement 43,830 66.13% 337,953 77.59%

Slab 16,690 25.18% 59,626 13.69%

Crawl 3,980 6.00% 19,087 4.38%

Other Types 1,780 2.69% 18,905 4.34%

Totals 66,280 100.00% 435,571 100.00%

Roofing Type ABC Insurance Data MS/B TES Data

Composition Shingles 62,990 95.04% 409,839 94.09%

Metal/Steel/Tin/Copper 1,320 1.99% 4,039 0.93%

Built-up/Tar & Gravel 710 1.07% 9,784 2.25%

Wood Shake or Shingle 500 0.75% 2,440 0.56%

Clay or Concrete Tile 50 0.08% 1,250 0.29%

Other Types 710 1.07% 8,219 1.89%

Totals 66,280 100.00% 435,571 100.00%

ABC Insurance has nearly twice the number of Slab foundation homes compared to the MS/B TES database. If these homes are in fact homes with a full basement, this represents a significant under valuation risk

ABC Insurance and MS/B TES data are reasonably consistent with regards to roof type.

» 13




Exterior Wall Type ABC Insurance Data MS/B TES Data

Stucco 9001.36%

8,1331.87%

Vinyl 17,29026.09%

155,29535.65%

Brick Veneer 39,77060.00%

200,22945.97%

Aluminum 4,3806.61%

42,7219.81%

Other types 3,9405.94%

29,1936.70%

Totals 66,280 100.00% 435,571 100.00%

Stories ABC Insurance Data MS/B TES Data

One 18,920 28.55% 112,372 25.80%

One and a half 15,330 23.13% 91,638 21.04%

Two 28,300 42.70% 211,527 48.56%

Three 3,720 5.61% 20,009 4.59%

Three and above 10 0.02% 25 0.01%

Totals 66,280 100.00% 435,571 100.00%

ABC Insurance has a significantly higher percentage of homes with brick veneer offset by a much lower percentage of vinyl and aluminum siding exterior walls.

ABC Insurance has a slightly larger percentage of “One” and “One and a half” story homes than the TES control group

» 14




Test criteria for validation

Number of outliers (records violating test

criteria, out of 66,280 total records)

Outliers percentage of total records

(8,670 outlier records)

Replacement cost of outliers

(in millions)

Cost per square foot of $70.00 or less 690 1.04% $9.0[1]

Total living area greater than 5,000 sq. ft. 370 0.56% $27.8[2]

Replacement cost greater than $700,000 450 0.68% $37.7[3]

Erroneous data collection and inaccurate input of property characteristics (excluding foundation) 6,690 10.09% $147.1[4]

Excess foundation 470 0.71% $12.6[5]

Summary of Outliers by Count and Replacement Cost (in dollars)

MARSHALL & SWIFT / BOECKH Advisory Board An Analysis of Claims Frequency & Severity Predictors...

Documents

Transcript of MARSHALL & SWIFT / BOECKH Advisory Board An Analysis of Claims Frequency & Severity Predictors...