Price optimisation is a powerful and often controversial technique that blends traditional risk cost modelling and an understanding of behavioural considerations such as price sensitivity to predict the “optimal” combination of premiums charged and expected profit. In this article, Milliman’s Eoin Ó Baoighill and Anita Subramani discuss price optimisation and its use for personal lines insurance in Ireland.
Increasingly, individuals are having their driving habits and living environments monitored electronically. A recent Insurance Journal article cited Milliman’s Sheri Scott discussing how exposure data tracking is shaping new underwriting practices for personal lines coverage like auto insurance.
Here’s an excerpt from the article:
Exposure tracking and the advent of autonomous vehicles are shifting personal auto insurance risk exposure from dependence on driver skills, estimated distances driven and garage location to the precise determination of vehicle locations, driving habits, driving distances and traffic conditions, all determined through the collection of trip data gathered in real time.
Yet even these underwriting considerations will soon be supplemented, if not supplanted, by the loss experience of automated vehicles and their manufacturers.
This transformation will not be without risks of its own, Scott said. In particular, she cited disruption of networked communications as a hazard, especially as vehicle occupants become dependent on automated control and less practiced at taking control of a vehicle.
“If some kind of communication goes down, there could be a very serious occurrence,” she said.