Scoring Brings Efficiency to Underwriting Small Commercial Risks

ISO Web Seminar Supports Insurer Interest in Leveraging Predictive Modeling and Scoring to Improve Commodity Business Underwriting

JERSEY CITY, N.J., May 15, 2006 — Small “commoditized” commercial risks are ripe for automation with sophisticated analytical tools that can scrutinize databases of industry loss data and other information to predict future underwriting losses.

Predictive modeling and scoring challenges and solutions were discussed during a recent ISO web seminar on ISO ScoreSM Small Business Underwriting. The seminar also explored the viability of underwriting small commercial risks with an automated scoring tool that can analyze and improve loss predictability.

Offering both underwriting and rating capabilities, the ISO Score analytical tool links insurer policy and loss data with external data, including crime, weather conditions and business — and location-specific information, to produce a score between 100 and 1000 to measure the quality of a given risk. The information allows insurers to better predict the likelihood of underwriting losses on small business risks.

“Underwriting small business risks can be a hit-or-miss proposition if insurers rely exclusively on financial information,” said Beth Fitzgerald, ISO assistant vice president for specialty commercial lines. “What if the barbershop or the pizza parlor doesn’t have any business financial record? Do you pass up on the risk when, if the underlying exposures were properly assessed, it could be a profitable opportunity?” Fitzgerald asked participants representing 55 insurer groups.

In illustrating how predictive modeling can enhance underwriting and responding to participants’ questions, Fitzgerald’s presentation revealed the following:

  • Small business risks, such as retail, wholesale, service and fast-food restaurants, are commodity based, generate low premiums and wouldn’t be cost-effective for expensive hands-on underwriting.
  • Profitable underwriting requires consistency, use of technology for faster data access, improved loss predictability of risks and increased accuracy of pricing decisions.
  • Reliable third-party location-specific weather, crime and business financial information is critical for supplementing insurers’ own loss data for predicting future losses.
  • Aggregated and quality industry loss data, representing nearly 10 percent of the small business market, is the underpinning of ISO Score. The volume of ISO data is more representative of the types of small business risks and avoids the bias of an individual insurer’s own past internal data to predict the loss potential for new business applicants.
  • Superior new business decisioning options range from writing or declining risk to adjusting price for taking on higher underwriting exposure.
  • Comprehensive industry data from ISO offers unique market advantage over a company-specific custom model, which, based on its own internal data, is expensive to develop, requires significant IT resources and can skew underwriting guidelines.
  • Fast, accurate scoring can mean the difference between making a profit and incurring a loss on a small business portfolio.

To review the ISO Score webinar archive online, please visit: www.verisk.com/iso.

About ISO
ISO is a leading provider of products and services that help measure, manage and reduce risk. ISO provides data, analytics and decision-support solutions to professionals in many fields, including insurance, finance, real estate, health services, government and human resources. Clients use ISO’s databases and services to classify and evaluate a variety of risks and detect potential fraud. In the U.S. and around the world, ISO’s services help customers protect people, property and financial assets.

Release: Immediate

Contacts:
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
201-507-9500
gbarone@mww.com / ehelton@mww.com

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