Building Pricing Models
Building a pricing model is not just an actuarial exercise. A key element to success is strong collaboration between underwriting, claims and actuarial. This collaboration is critical for at least a couple of reasons:
- To leverage knowledge and expertise of each of these disciplines
- For end-user adoption
We have built many pricing models for a wide range of products and coverages. We apply a collaborative approach that utilizes diverse and complementary perspectives to drive a better result. This collaborative approach also promotes stronger engagement within our clients’ organizations, which improves end-user adoption of the pricing models.
Below are some considerations when building a pricing model:
- What is the coverage being priced?
- Who are the potential insureds?
- What data/information is available to quantify the exposures and parameterize the model?
- Who will use the model?
- Will the user manually enter customer information or will it be pre-populated?
- If using pre-populated data, how often will this data be updated?
- Will the pricing model be used to calculate rate change for renewals?
- Will the pricing model include schedule and/or experiencing rating components?
- Will there be illustrative exhibits included in the model?
- Will the model be integrated with a production system or data warehouse?
- How will the model be secured and distributed (e.g. email, shared drive, integrated application)?