Predictive Models

Question 1

Potential benefits of using analytics in insurance

Answer 1

REL
- REVEALS insights into insurance costs
- ENCOURAGES better risk management
- LOWERS many consumer costs

Question 2

Challenge state insurance regulators face with predictive models

Answer 2

Many lack the necessary tools to effectively review rapidly evolving predictive models

Question 3

2 main responsibilities given to the Casualty Actuarial and Statistical Task Force

Answer 3

1. Draft and Propose changes to the Product Filing Review Handbook
2. Provide State Guidance for rate filings based on predictive models

Question 4

Purpose of guidance provided by Casualty Actuarial and Statistical Task Force

Answer 4

Enhance uniformity in regulatory processes while considering state-specific insurance needs

Question 5

What is the purpose of regulatory best practices for predictive models?

Answer 5

PUB
- Support PARAMETER valuation
- Improve model UNDERSTANDING
- Provide a BASELINE for state regulators

Question 6

Do regulatory best practices create standards for filings with predictive models

Answer 6

NO! but they help identify model elements and improve rating plans for consumers

Question 7

How do regulatory best practices help state insurance regulators and the industry

Answer 7

GIFIA
- GUIDE regulators
- IDENTIFY key model elements
- FACILITATE resource sharing
- IMPROVE review quality
- AID in training

Question 8

How do regulatory best practices benefit state insurance marketplaces?

Answer 8

They ENHANCE market speed and competitiveness by improving review processes

Question 9

How do regulatory best practices assist new insurance regulators?

Answer 9

They PROVIDE training and help IDENTIFY needed resources for model reviews

Question 10

How do regulatory best practices help state insurance regulators?

Answer 10

• To understand if a predictive model is COST-BASED
• To understand if the predictive model is COMPLIANT with state law
• To understand how the model improves a company’s RATING PLAN

Question 11

Regulatory Review Items to Include: Check that RATING FACTORS have these 3 characteristics

Answer 11

1. Produce fair rates
2. Do NOT cause excessive premium disruptions
3. Comply with state practices

Question 12

Regulatory Review Items to Include: Check the following 4 items regarding DATA and MODEL

Answer 12

BAAF
1. How the model was BUILT
2. ACCURACY of input data
3. ADJUSTMENTS to raw data
4. Update FREQUENCY of risk characteristics

Question 13

Regulatory Review Items to Include: Check INTERACTION of the model with the rating plan

Answer 13

• Must understand input characteristics of model
• Must understand integration of model with rating plan
• Must understand interaction of model with non-modeled variables

Question 14

Regulatory Review Items to Include: Check for these 3 desired characteristics regarding the INSURANCE MARKETPLACE

Answer 14

1. Enable competition and innovation
2. Protect model confidentiality
3. Allow timely review for speed to market