Frequency or Severity Issue
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Issue: The CEO needed more detail on what was causing an increase in the company's losses for the year. Therefore, he needed a way to quickly analyze the Company's claims to determine what was causing this deterioration. He also knew that this change could potentially have a negative effect on their rating.
Solution: Using BEACON, CEO independently began to analyze claims for the prior year. He determined that the loss ratio for the homeowners line increased 60% compared to the prior year. A further analysis of the claims associated with this line initially showed no obvious patterns by region or agency experience. However, by restricting these claims to those with losses in excess of $10,000 a pattern did emerge. He determined that this change was attributable to only 127 policies, which represents 0.0428% of all inforce homeowner's policies. The CEO reasoned that the overall book of homeowners business had a good claim experience, but that these claims caused an unanticipated severity. By further analyzing these claims, he determined that the major cause of loss was fire followed by claims for water damage.
Result: Using the information obtained from BEACON, the CEO presented his findings to the Board of Directors. With this information, the Board was able to understand what caused the change in the company's financial situation, which included the responsible policy numbers. Furthermore, the CEO completed the entire analysis from his desktop computer in less than one hour. In addition, the analysis created using BEACON was very helpful in meetings with the national rating agencies.
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