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Large insurers more likely to embrace predictive modeling


Roughly half of commercial insurers say predictive modeling is “essential” for risk selection and rating, according to a new survey from professional services firm Towers Watson & Co., released Thursday.

Responses varied according to company size, however. Under half, or 44%, of standard small to midmarket commercial lines insurers responded that predictive modeling is essential, while 56% of large commercial and specialty lines insurers indicate it’s essential or very important, according to the survey.

Meanwhile, 57% of insurers use predictive modeling for underwriting and risk selection, and its implementation is expected to grow by 33% over the next two years, said Towers Watson.

The long-term growth trend for modeling techniques is consistent across all areas of insurers’ business, with 36% planning to use it for fraud identification, 46% for evaluation of litigation potential and 49% for loss control.

The survey found the average interval between updates of insurers’ models was shortest for personal lines at 1.9 years for both homeowners and auto. For other lines, including specialty, commercial, general liability and workers compensation, the average was between 2.3 and 2.6 years.

“The refreshing and updating of models is an important aspect of successful execution of predictive modeling applications,” Klayton Southwood, director of Towers Watson’s property/casualty practice, said in the statement.

The survey was a Web-based query of 52 U.S. and Canadian property/casualty insurance executives from Sept. 3 through Oct. 22, 2014, 22% at commercial lines insurers.

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