Influential factors behind expected loss valuations

By Joseph Artgole - August 24, 2020

What are the influential factors behind expected loss valuations? Read on to find out more.

When discussing the impact of predictive pricing, the ability to drive business capability change and a new perspective on risk, we refer to influential factors. Influential factors are the elements of risk that contribute to an expected loss valuation. They are exhibited within Quest Marine Hull at both vessel and account level. 

The performance of each factor is shown relative to a global vessel average for context. Underwriters and Brokers therefore have a clear understanding of how to approach an account. Negotiation, consultation, warranties, and renewals receive further evidence, supporting a targeted approach to risk mitigation. If looking at Influential factors at an account level, individual vessel profiles are listed clearly in terms of contribution to that factor for a targeted approach to improvement.  

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Figure 1 Average Port Risk

In practice, warranties can cover underperforming factors to enable business to be written at renewal. A target for that factor can be negotiated, whereby more favourable terms would come into place if achieved during the life of the policy. This would lead a Broker to focus client consultation efforts on achieving agreed KPI’s, making future placement of the account more attractive. Incentivising investment into initiatives that actively lower risk profile turns the placement of risk into a more long-term proposition. The real-time position of an account becomes more important than a single snapshot of risk at renewal date. Therefore, a more customer-centric market should emerge. 

Successful accounts will see reduced exposure through better access to data and direction. Brokers will see improved retention due to the added value delivered to the Insured. Underwriters will be able to continually monitor efforts due to the real-time nature of data received. With more transparency and improved directives, the sector will see risk profiles and loss ratios improve. This is especially important in a hardening market, where placement becomes even more selective 

 

 

Figure 2  Policy life-cycle 

For a detailed look at how this methodology is changing the industry, download the whitepaper or get in touch. 

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