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Predictive Analytics Keys Higher Commercial Insurance Prices: Studies

Though the sector is focused on growth and is investing in distribution, equally hot are analytics technologies that drive underwriting discipline.

Commercial insurance prices rose 6% in the second quarter of 2013, the tenth consecutive quarter of price increases, and insurers in the sector are investing in technology that helps them price their books accurately, according to two reports released today.

Towers Watson's latest CLIPS (Commercial Lines Insurance Pricing Survey) research of 40 U.S. commercial insurers found workers compensation and employment practices liability lines experienced the largest price increases year over year, but no lines experienced increase of less than 4%.

And, Novarica's Business and Technology Trends: Commercial Lines report, written by Karlyn Carnahan and Steve Kaye, analyzed more than 250 insurers who the firm deemed "highly active in this space." That research found that like insurers across business lines, core systems modernization was a high priority. But commercial insurers are also making big-time investments in agent portals, as well as business intelligence and analytics.

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Towers Watson found that "companies that used predictive models in pricing or underwriting" saw greater price increases. Novarica wrote that while growth is a primary driver of distribution and core systems investments, better analytics capabilities are key to making sure the existing book of business is prices correctly for the changing world of commercial risk:

More and more carriers are using data, predictive analytics, and business rules to try to more consistently apply underwriting expertise and make better underwriting/pricing decisions by aligning pricing actions with risk quality. More sophistication in pricing techniques is possible with improved data, and data initiatives are common as carriers expand their use of modeling techniques to better manage catastrophe exposures.

Both companies, however, noted that the industry is currently enjoying a low period of catastrophe activity, helping to preserve its bottom line. But, Tom Hettinger, Towers Watson's Property & Casualty sales and practice leader for the Americas, said in a statement that "the potential for greater inflation over the medium term looms, and may give the steady price increases we've been experiencing some additional staying power."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio

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