Meagan and John discuss what you need to think about when looking for opportunities for additional segmentation.

John and Meghan here from MCA. In our last video, we talked about loss ratio pressure in the commercial line space and how important pricing segmentation is to compete.

So, Meghan, how would we go about introducing new variables?

The first thing you’re going to want to do is understand the market. You can do this by looking at your key competitors and the best-in-class competitors.

You can look at what’s filed, but you’re not going to get everything there. We also recommend talking to your agents and understanding their experience with some of their competitors. Once you gather all this feedback, you’re going to want to conduct a gap analysis where you’re going to look to see are there variables that competitors have that we should have?

For instance, this could be something like a business financial score. Or are there variables that we currently have that could benefit from additional segmentation? This might be something like construction year. Rather than grouping it into decades, you can have a curve where each year has its own rating factor.

Once you’ve completed this gap analysis, how would you go about figuring out what your next steps are? It’s very important to prioritize where you go from there.

When you finished a gap analysis, oftentimes it can be overwhelming. There’s a lot in the market. There’s a lot of places, a lot of things that you can run at. It’s important to prioritize. Really the place to start is what is most prevalent in the market. Where do you think the biggest gaps are and where are you going to get the biggest lift?

So that’s one key way to look at it. The other is how quickly can you get it into the market? Some things are easier to change than others, right? If you have the data in-house or have a relationship with a third-party vendor already that you can easily connect to through API. Those tend to be the quickest ones to get into the market, and that’s generally where we recommend starting. Get something in place, and then you can always build on top of that.

Obviously, pricing segmentation is critically important to compete in commercial lines. But there’s other things too, like straight through processing, and these are the things we’re going to talk about in the next few videos.