Continuing our previous discussion about segmentation, I’ve got Drew Hill here to discuss a time he implemented segmentation into a client class plan. First, Drew, I want to ask, why do you think segmentation is so important?
I think segmentation is an imperative for anybody who’s in the insurance business because pricing is so sensitive regardless of what market you’re in. So if you are not utilizing variables or certain profiles in your pricing that the rest of the marketplace is you leave yourself susceptible to things like adverse selection or you may be attracting profiles of business that you may not be interested in writing as much as others.
Drew, you just told me why segmentation was so important. Can you tell me about a time that you implemented segmentation into a client class plan?
I’d say what we’ve done a lot of is territory revisions, so that can be across both personal and commercial lines. It can utilize third party or vendor data or it can utilize internal data. So from those perspectives, geography is just a very powerful element of a rating plan and is also highly correlated with many risk attributes or profiles. So it’s key to really have that level of pricing as sophisticated as it can be. But it also is very challenging because as you think about the ability or the potential disruption, I should say, between different geographies that are basically adjacent to one another, there’s just additional components that you need to think about.
And would you say that that was your biggest issue when implementing territory changes was the difference between the two territories that were adjacent to one another?
I would say smoothing is one. So basically the concept of just having your factors be a consistent progression between, adjacent geographies, I’ll call it. And then the other is really just around from a regulatory perspective, having enough credibility within a particular territory.
So that’s also where a lot of times third party vendor data will really help with that as well because unless you have a significant amount of scale, you typically don’t have enough experience to actually justify as many or as granular of territories as you might want. So leveraging third party vendor solutions can really support that as well.
So Drew, you just broke down the implementation of territory, some of the issues that you ran into. Can you talk a little bit more about how you think tracking and measuring success of this implementation?
Definitely. So setting expectations is always important for any change that you make. So I would say from a territory perspective, it’s all about how you basically identify your, your newly defined territories and create expectations based on what pricing changes or other adjustments, you know, are occurring so that you set a standard going into that change to monitor. And then when you’re monitoring that, you can obviously monitor that by certain territories. Oftentimes it takes a while to actually get credibility of numbers. So having a local market view of that is always really helpful as well. And then there’s other ways you can monitor just in terms of how much of an impact you know you had on certain groups of territories just to see from that perspective. So major geographies is always a key theme as you think about it at a higher level. But then you can still look at a much more granular level in terms of where you actually implemented more pricing changes.
And you look at this from a new business perspective, a renewal perspective, all cross the board?
Yeah, exactly. It always starts with competitiveness. But then as you, I guess, define your territories from a renewal standpoint as well, that will that will show through as well. It all depends from a renewal standpoint how much of an impact you’re allowing to sort of flow through into your book of business. But you’ll see those changes predominantly in new business first, since that data obviously comes to you a bit more real time then as a renewal book sort of matures.
Thank you for your time.