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Commercial insurers lag personal lines in using predictive modeling: Analysis

Commercial insurers lag personal lines in using predictive modeling: Analysis

Commercial property/casualty insurers are catching up with their personal lines counterparts in using predictive modeling, which is the use of statistical modeling approaches to better understand and price individual risk, according to a Towers Watson & Co. survey released Monday.

The survey of commercial lines property/casualty insurers found that about 70% now use or plan to use predictive modeling in their underwriting and risk selection, rating and pricing within the next two years, according to the New York-based consultant.

In contrast, about 85% of U.S. personal lines insurers already use predictive modeling or plan to do so, according to Towers Watson.

The survey found that the greatest growth potential appears to be concentrated in the commercial property, commercial multiperil and business owner lines of business, where 48% of respondents indicated they intend to implement predictive modeling for risk selection or pricing.

The summary said adoption of predictive modeling will be accelerated in part “by insurers' dissatisfaction with current risk assessment and rate-setting approaches.”

Many commercial lines respondents said they have limited confidence in standard industry class plans' ability to segment business appropriately by exposure, including 67% of medical malpractice insurers, 65% of directors and officers and employment practices liability insurers, and 56% of commercial automobile insurers.

A total of 60 U.S. and nine Canadian property/casualty insurance executives participated in the survey. A total of 48 of the 60 U.S. responders write at least some commercial lines business, according to a Towers Watson spokesman.