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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.

By  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 degree.

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 powerful.”

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.

Model Partners

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 shops.”

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 says.

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 says.

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 programs.”

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.

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