Extremely Multi-Dimensional Profitability Analysis –Rick Baff, Pinpoint Solutions LLC

Industry Overview Industry Challenges Industry Solutions –Real World Example –Benefits Gained Lessons Learned Agenda

Industry Overview: Property & Casualty P&C Combined Ratios

Premium Dollar Allocation (1998) Source: Insurance Information Institute and A.M. Best Co. Inc. *Excluding federal and foreign income and real estate taxes. Losses and other payments total $1.06 for every dollar of premium. P&C Premium Dollar

P&C Claims Analysis ULAE Admin 11% ALAE 6% Cat 5% Other Losses 51% Fraud 10% Medical 17% Medical: $ Billion Litigation: $36 Billion Collision: $30 Billion P&C insurers can apply provider management techniques as HMOs have. $211.8 Billion (1997)

Industry Overview Industry Challenges Industry Solutions –Real World Example –Benefits Gained Lessons LearnedAgenda

Bottom Line: Focus on Profitability Analysis and Understanding/Integrating the Customer/Channel. Globalization Internet & Technology Deregulation Customer Consolidation & Financial Services Convergence Industry Issues & Challenges

CEO Issues Distribution Effectiveness Increased Competition Changing Customer Demands Information & Technology Management Expense/Cost Management % of Respondents Selecting Tillinghast Towers Perrin 2000 Financial Services Industry CEO Survey Report

Industry Overview Industry Challenges Industry Solutions – A Real World Example – Benefits Gained Lessons Learned Agenda

An Introduction to Extremely Multi-Dimensional Analysis Multi-Dimensionality Measures Time!!! Rating Variables Demographics Dynamic Dimensions What Extremely Multi-Dimensional Analysis Can Enable You To Do

What It Takes In Insurance Detailed Data Many Dimensions Complex Calculations Time Manipulations The Data

Getting the Data Where is the Data? How is the Data Structured? How Clean is the Data? How is the Data Updated?

Defining Multi-Dimensional Multi – many, multiple, much Dimensional – one of a group of properties whose number is necessary and sufficient to uniquely determine each element (need 50 states to define all states) a parameter or coordinate variable assigned to such property (big or small, high income or lower income state) The range over which or the degree to which something extends

Real World Example 35 Million policies 30 Dimensions Complex earnings calculations

Industry Overview Industry Challenges Industry Solutions – A Real World Example – Benefits Gained Lessons Learned Agenda

Identifying specific actions you can take to improve profitability Value of Profitability Analysis

ROI Reducing Loss Ratios Reducing Claim Severity Reducing Pure Premium Focusing Sales and Marketing Improving Pricing Identifying Profitable and Loyal Customers Identifying Profitable Channels & Partners

CONSUMER Consumer Demographics COVERAGE Coverage Status Coverage Sub-line Sales Transaction Type Line of Business Term SIC Codes and Programs Property Limits and Deductibles SERVICE PROVIDER Providers and Vendors TPAs Geography CLAIMS Claim Problem, Diagnosis & Remedy Coverage Features and Procedures Expense Type Loss Type PAYMENT Payment Types ANALYTICS Earnings Methods Advanced Functions User Defined Sample Multi-Dimensional Model COMPANIES Commercial Demographics Business Units Insurance Carrier REINSURANCE Gross Ceded Net TIME Effective Date Ranges Payment Date Ranges Incident Date Ranges ProfitCube 3.0 Calendar Time Elapsed Time PROFITABILITY Loss Ratios Combined Ratios IBNR Expense Allocations P&L’s APPLICATIONS Ratemaking Pricing Reserving Reinsurance Structuring Expense Monitoring Capping and Layering

Industry Overview Industry Challenges Industry Solutions – A Real World Example – Benefits Gained Lessons Learned Agenda

You can’t manage what you can’t measure. Measurement of “bad” data is a waste of time. Business drives data warehousing. If the business user can’t access the data without IT, we’re not doing our jobs! If you don’t take action, the investment is worthless. If it isn’t automated, you can’t be sure that it was done!