PriceAdvantage
PriceAdvantage is a service to deliver bespoke predictive pricing models for insurers and MGAs, to help them grow profitably.
PriceAdvantage has five steps for success in pricing to deliver profitable growth:
Understand your experience
Generate differentiated insights
Build a pricing model that identifies areas of opportunity and areas of high risk
Collaborate on a strategy to leverage identified opportunities
Monitor for accuracy, execution and impact
PriceAdvantage’s 5 steps in pricing to deliver profitable growth
1. Understand your experience
Loss Ratio decision tree
We want to help you grow profitably, not just build models, so our first step is to understand your current pricing model, how you’re using it, and what your experience has been. We talk with you to understand your views on profitability in your portfolio. We also analyze your data, through decision trees, to identify high versus low loss ratio segments in your portfolio.
2. Generate differentiated insights
Map360
InsurTech360
We work with your team of underwriters, portfolio managers and claims professionals to get their ideas on the drivers of loss costs for your customers. We then look for data that can test those ideas and find new insights. We conduct a comprehensive sweep that includes:
Map360 - Octagram’s proprietary data asset of combined population, demographic, business and insurable event data (for , fires, car accidents) that have occurred in each 250 square meter block in the U.S.. In our development pipeline is a Business360 and People360 data asset.
InsurTech360 - we maintain a comprehensive database of external data vendors, and you’re welcome to look at our public-facing google docs version here.
External data - we sweep our contacts, look online and make freedom of information requests for relevant external data from municipal, city, state and federal government sources.
3. Build a pricing model that identifies areas of opportunity and areas of high risk
Octagram validates the ideas from step 2 and turns them into insights, using a predictive model. The goal of the predictive model is to find two avenues for profitable growth:
predict types of accounts that were lower risk than previously thought. These represent areas of opportunity and growth, as they will have lower loss ratios.
predict types of accounts that are higher risk than previously thought. These are accounts for which you want to get rate or avoid in the future as they will be the drivers of high loss ratios.
How do you know if this has been achieved? We’ll showing you how your current model segments loss, and compare that with how the new model segments loss. The image “Segmentation of Existing Pricing Model” shows that your old pricing model had the power to identify your best 20% of accounts that had, on average $253 of loss cost for each exposure unit. Contrast that with the new pricing model, which can identify your best 20% of accounts that have, on average, $87 of loss cost for each exposure unit. This is a good improvement in predictive power from a model.
4. Collaborate on a strategy to leverage identified opportunities for profitable growth
We don’t just leave you with a model and say goodbye. We collaborate with you to create a strategy to leverage the opportunities we have found. For example, let’s say that the best 20% of accounts that we’ve identified that have only $87 of loss per exposure are blue convertibles in metropolitan Denver. Then we can work with you on how you might write more blue convertibles in Denver. For example, we could see if you had submissions of this business in the past from particular broker locations. Perhaps those submissions have stopped coming in, because your past prices were too high. It may be time to give that broker a call.
5. Monitor for accuracy, execution and impact
After the pricing model is deployed, we monitor the model for three things:
Accuracy - is the model accurate in it’s segmentation of low risk vs high risk accounts
Execution - are you growing in the identified opportunity areas? Are you getting rate or shrinking in high risk accounts?
Impact - if the model is accurate, and you are executing, then you should be seeing the profitable growth that you were looking for.