Predictive Modeling and Your Insurance Agent or Broker

Predictive modeling could change the relationship you have with your agent or broker because it changes the complexion of riskiness. This is not only true for workers’ compensation, but commercial and executive coverage as well.

Currently, agents and brokers respond to insurer underwriting changes, which can happen without warning to them. Insurers are trying to do a better job communicating to their agents and brokers about new underwriting parameters resulting from predictive models.

 If insurers choose to write coverage differently for certain risks or industries, your agent or broker might have to scramble to find a new insurer. As pointed out in a previous blog, predictive models are more sensitive than the traditional experience modifier. Therefore, you could be surprised by the delicacy of insurers’ predictive models compared to the traditional experience modifier.

You might even get new and better service. Agents are increasingly becoming “strategic partners” with their clients. To improve customer retention, these agents try to help clients improve their risk profile. This is already going on in the health insurance arena where agents and brokers are offering wellness and disease management programs to improve the health of their clients’ employees.

You might even get new and better service.

Insurers have also developed predictive models to determine which agencies and brokerages more likely to bring in business. So if you like your insurer, you may end up having to use a different agent or broker.

Theoretically, agents and brokers can use predictive modeling to help their customers make better buying choices. Some very progressive agents are initiating their own efforts to identify the cost of an employer’s workers’ compensation risk through predictive modeling. They are recommending initiatives to improve risk and the pre-underwriting phase of buying insurance.

However, most do not have the resources to hire actuaries and statisticians to build models or locate appropriate data sets. And, too many agents and brokers are having difficulty adapting to computer automation. Expect them to ask more detailed questions about your company. This additional information is for the predictive models for underwriting and perhaps premium auditing applications.

Off-the-shelf workers’ compensation predictive modeling products are not yet available to agents and brokers. Until they are, you and your agent may end up at the mercy of predictive models insurers are using.

As I covered last week, predictive modeling is here to stay. We are yet to realize all of its ramifications.

Finally, in comments posted by readers, I asked how soon predictive modeling would affect them. My broad assumption is the larger the insurer you buy coverage from, the sooner and more likely you will be affected by predictive modeling. This is simply because larger insurers have more resources to devote to predictive modeling. But small-to-medium insurers are catching up because they must compete. (For more information, check out my Leader’s Edge article, Modeling the Future, which covers how predictive modeling will affect agents in much greater detail.)

Next Week’s Blog: Predictive Modeling: Opportunities for Self-Insured Employers

This is part III of my series,What Employers Need to Know About Workers’ Compensation Predictive Modeling. To read part I, click here. Part II, click here.

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