| ||Fast Focus|
Predictive modeling typically confirms the conventional wisdom
of experienced underwriters while finding new and variable
combinations to forecast risk.
Generally speaking, the larger the carrier the more likely
predictive modeling is making its way from actuary to agent.
Predictive modeling also reveals the factors behind the prices
so brokers can help clients improve their risk profile.
Modeling the Future
Predictive modeling means better
margins but closer broker scrutiny by carriers.
Annmarie Geddes Lipold
It is no wonder that predictive modeling is emerging as a
profitable best practice in commercial lines insurance.
The results are just too compelling to resist. Predictive
modeling—a broad term that encompasses statistical
techniques to analyze current trends and forecast future events
and their consequences—boosts premium accuracy, finds
sweet spots through market segmentation and saves on loss
adjustment expenses and loss costs.
Also known as predictive analytics, predictive modeling
applies statistical methods and algorithms to consider
traditional and nontraditional variables indicative of future
events. Predictive modeling typically confirms the conventional
wisdom of experienced underwriters while finding new and
variable combinations to forecast risk.
“It is a game changer in opportunities for [brokers]
and will change the nature of the relationship with
carriers,” says Roger Burkhardt, president and CEO of
EagleEye Analytics, an international property-casualty
predictive modeling provider whose clients include Guy
Carpenter and Milliman. “There will be more transparency
in the profitability of agents.”
Predictive modeling is taking place in different pockets of
the property-casualty industry, which makes it challenging to
gauge how many brokers are being affected and to what
Many brokers are not addressing the results of insurer
models, says Chris Gagnon, director of strategic technology at
The Council and president of Tiebeam Partners. But those with
the technological interest are actually developing predictive
models to enjoy the same benefits as insurers, Gagnon says,
though this practice is not widespread. “Everyone knows
that data is power,” he says, “and that the ability
to interpret it to help the insured is even more
Off-the-shelf, plug-and-play predictive modeling software is
not yet available, so enjoying this strategic advantage
requires in-house predictive modeling capacity. Adopting
predictive modeling is not coming any easier for brokers than
it is for insurers.
Brokers are hopeful about predictive modeling’s
potential, according to Gagnon. “The big angle is
differentiation,” Gagnon says, which gives brokers new
market segmentation and service opportunities.
Predictive modeling, Burkhardt says, can create a list of
profitable prospects for agents and carriers to identify the
combination of factors that define an attractive market. Using
predictive marketing, he says, “an agent can become very
expert in defining a better way to quote insurance for a narrow
segment of business, like dry cleaning or auto
Agents can also use this approach “to identify the
most important clients to retain and grow and then build sales
and service programs to support these goals,” Burkhardt
Imagine making predictions right at the point of quoting and
buying, and then showing profitability with the least
deviation, Burkhardt says. “You can optimize your income
because you know the profitability of the prospect,” he
And since agents will better understand how much
profitability they are bringing to carriers, the profitability
partnership between the two grows stronger, he says.
“Over time,” Burkhardt predicts, “agents and
carriers will be working together and developing loyalty
Predictive modeling also reveals the factors behind the
premiums so brokers can become strategic partners with clients
by helping them improve their risk profile. “Some
insurance professionals are calling themselves portfolio
managers,” Burkhart says. Such brokers, he says, can show
they are best informed about the market and provide the best
options for a potential risk.