Purpose and Intended Result: This research paper is intended to fill the void in the currently available actuarial literature related to information required by the reinsurance underwriter but often lacking when pricing property per risk coverages worldwide. Results from surveys of members in the UK, European and US actuarial communities, as well as others in the related insuring communities, clearly indicated a distinct disconnect between the information desired by reinsurers and the information commonly included within a cedent’s submission. Underwriters are unable to refine the pricing of a contract because of this disconnect. Complicating the matter is the fact that this disconnect can occur in one or several steps in the transaction, beginning with the retail agents and/or brokers up through any level of reinsurer.
Primary insurance carriers use the information collected by their retail agents or the insured’s broker for their own underwriting purposes. The insurance carrier then decides what and how much of that information is provided to the reinsurer. Assumptions are made at each level. The agent or broker assumes it has provided the information wanted and needed by the primary insurance carrier because a policy is offered. Likewise, the primary insurance carrier assumes it has provided the requisite information to the reinsurer because a contract is offered. These assumptions affect pricing.
Rather than allowing such assumptions to continue (that the information provided is sufficient and correct), this research paper attempts to specify what information is important to the reinsurer. When primary insurance carriers know what is important to the reinsurer, they can gather that information from the agent or broker. This paper results in a top down approach to improved property underwriting and pricing. When assumptions don’t have to made, pricing reflects the true exposure. Every level wins: the insured gets the best pricing available from the insurance carrier because the primary insurance carrier gets the best pricing from the reinsurers.
Methodology: To support this research paper a survey was prepared and administered by the Institute and Faculty of Actuaries and the Casualty Actuarial Society. This survey was used to identify the information that is commonly included in submissions compared to the information that is desired by pricing practitioners. The survey information, along with input from a wide ranging insurance and reinsurance industry Working Party, was used to produce this research paper and to offer observations and make suggestions in many different facets of the pricing process.
The main sections of the paper describe various primary and reinsurance company considerations, and a ranked importance of the main exposure and experience pricing data elements. Each of the main exposure data elements of amounts of insurance definitions, exposure submission types, ground-up loss ratio estimation methods, the usefulness of historical profiles, and granular importance of each of the main elements of construction, occupancy, protection, and exposure is described in detail. Similarly, information related to experience rating such as large claim information including the link to exposed values, various price monitors, and using property cat submissions are reviewed in detail. Lastly, an introduction to some regional differences is included.
Results: The main results of the research paper are: Show the importance of each data element requested by either the primary or reinsurance company; Provide a reference document to enable a deeper understanding of how each of these elements fit together Since much of the information presented here may extend to other property or casualty lines such as property catastrophe, crop insurance, motor, employers liability, cyber, and other emerging markets, hopefully this research may help provide a framework for additional expansion into these other lines of business. Information presented here is recommended for use as a reference document for anyone involved in the pricing of property per risk, and the extensions to other lines of this information can be explored.
