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Transforming Underwriting

MARCH 2004

on perpetual appreciation in either equity or bonds has fallen into disfavor.

Figure 3: 2002 Personal Lines Combined Ratio

2002 Personal Lines Combined Ratio

120

100

2.0 22.5

80

60

Total Combined Ratio: 104.2

40

79.7

20

0

LOSS & LAE RATIO U/W EXP ONLY RATIO

EXP RATIO (excluding U/W)

Source: Best’s Aggregates & Averages 2003 and Celent estimates

Improvement in underwriting profitability can result from improvement in any, or all, of the parts of the combined ratio:

  • Lowering expenses—for underwriting only, or for all expenses

  • Reducing losses—choose risks with lower probability of incurring

losses

  • Increasing premiums—through raising rates and/or selling more poli- cies

  • Improving the premium/risk relationship—e.g., reducing premium per policy a bit, and reducing loss per policy even more

Subsequent sections in this white paper will describe how the four underwriting technologies make a positive impact on each of the combined ratio elements.

© 2004, Celent Communications. Authorized reproduction permitted.

www.celent.com

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