Actuarial pricing, capital modelling and reserving

Pricing Squad


Issue 13 -- April 2017

Welcome back to Pricing Squad!

Pricing Squad is a newsletter for fellow pricing practitioners and actuaries in general insurance.

Today's issue is about telematics pricing.

You can also read a review of Excess of Loss Pricing Explained by Keith Riley.


Six facts about telematics pricing

Are you thinking about telematics, driverless cars, artificial intelligence and Big Data?

I'm not sure about the rest of these buzz words, but telematics is real, and below are some facts about its pricing.

  1. There are at least eleven distinct telematics insurance products in the UK private motor sector at the moment (and the rest of this post is based on these eleven), accounting for about 5% of the total private motor market.
  2. "Telematics" means different things for different products. Aviva uses telematics mostly as a marketing and risk selection tool, while Insure the Box has developed a whole unique product around it. Other providers are somewhere in between these two.
  3. Some providers only read in telematics data once in a policy's lifetime, at the point of new business. The majority use telematics records at each renewal. One in four use the data quarterly - resulting in quarterly premium adjustments. And just one provides cycles based on their customers' driving habits each month.
  4. Telematics gives an overview of people's mileage. However, at least one provider does not take advantage of it at all. 37% of examined products use recorded mileage on renewal only. One in four review it continuously and charge for any mileage in excess of initial declaration. Another quarter offer mileage top-ups in fixed bundles.
  5. The discount or load based on a customer's style of driving is not more than +/- 20% of the premium for nearly all products offered on the market.
  6. It is impossible to find any data in the public domain on whether telematics-based business is more or less profitable than traditional business. Various sources say that average telematics losses are between 20% lower and 5% higher than those for the rest of the market.

If you are interested in a full report on this subject, email me today.


Book Review: Excess of Loss Pricing Explained by Keith Riley

This 40-page Kindle book explains the essentials of practical excess of loss reinsurance pricing.

The main topics covered are:

  • Definition of Excess of Loss cover;
  • Definition and use of First-Loss-Scales;
  • Using Poisson to price various free and non-free reinstatement options;
  • Examples of retrospective burning cost rating;
  • Definition and applications of Rate-on-Line;
  • Definition of Geometric Layer Mean;
  • The triangulation between Rate-on-Line, Geometric Layer Mean and total retained, aggregate losses, and how to compare reinsurance programmes using these measures.

The book also introduces the reader to common industry practices and rules of thumb, such as the 100 / 70 reinsurance margin or the 90% ex 10% catastrophe layer.

I like that this book speaks common sense and has a low fluff factor.


Do you need support?

If you need access to pricing tools to radically simplify your work and deliver reduced loss ratio quickly, or if you are simply looking for an actuarial contractor, get in touch.

Thank you for reading, and have a great day,
Jan Iwanik, FIA PhD


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