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Analyzing Your Results

Loss Ratio Versus Loss Frequency

An individual agency is a relatively small sample of data to review, so do not be trapped into reviewing only loss ratio results. While loss ratio information is important, it is only one of several areas which may point to potential problem areas. The smaller the amount of information, the more severity can affect loss ratio results. At the agent level, average premium, average claim cost, and loss frequencywill be more useful to pinpoint those areas in need of improvement.

Trending Versus Cumulative Totals

Depending on the size of a particular book of business, you may not have sufficient numbers to produce credible loss ratio information. For this reason, it is important to trend your data to determine what direction it is going and combine the years to review overall results. For example, use the Experience Analysis to loss at the Property Damage Frequency for the last several years. A rising PD Frequency is a sign of a deteriorating book of business.

Data With and Without Catastrophes and Weather Related Losses

If you are located in an area prone to catastrophes and weather-related losses, you may also want to review your results without cats to determine how these losses have influenced your results. Keep in mind that weather related losses are built into the premiums we charge, therefore when you back out catastrophe losses from your overall results, you would also need to back out that portion of your premium as well. Twenty percent would be a realistic figure to use in this scenario.

Loss Frequency vs Loss Severity vs Average Premium

These three factors have the greatest impact on your loss ratio, and are controllable by you/your agents to varying degrees. As you analyze an agents book and develop strategies to make improvement, remember that every plan must affect one or more of these three ratios:

Increase Average Premium
Total Premium / Policies in ForceReduce Frequency
Loss Count / Policies in ForceReduce Loss Severity
Total Loss Amount / Number of Losses

Average premium is an indicator of the quality of insureds within a book of business. It also can be used to gage our success at collecting adequate premium for the exposure. If average premium is lower than expected for an agent, or your district, you should ask yourself the following questions:

Is this book of business in a different rating territory, with lower rates than the group-at-large?

What types of coverages does this book have? Liability Limits? Material Damage? Amount of Insurance?

In Auto, what are the percentages of youthful rate classes, vehicle usage, mileage?

Do there tend to be more cars than drivers? Do garaging addresses match mailing addresses?

In Property, how does the amount of insurance compare to the CDRC (replacement cost)? If you find the answers to these questions to be inconsistent with the rest of your area, it simply means a closer look is necessary. This is to ensure that there is adequate documentation for the selected rating criteria, and that your agents are focused on soliciting and writing the desired customer profile. Inconsistencies in this area can also be an indication of the quality of agency staff training.

Loss frequency is probably the best measure of the overall quality of a book of business. Frequency is measured in every coverage, but traditionally we have paid the most attention to PD Frequency (in auto). This is because PD claims (i.e. the coverage used to pay B parties car, mailbox etc.) should always be at fault incidents.PD Frequency is shown on your experience analysis, and is also available on various IMPACT reports. In some no-fault states (i.e. Michigan) Collision Frequency is used instead of PD Frequency. In either case, one key point to remember is that the trend is more important than the raw number, so it is important to analyze PD (or Collision) Frequency over time. A deteriorating trend indicates potentially serious underwriting problems in the book of business, and warrants a closer look. Dont wait until an agent is in an upward spiral; start looking into it as soon as the trends start to change. Feel free to call upon your Personal Lines Agency Consultant, or your Service Center Underwriting Department for assistance in analyzing your trends.While ultimate responsibility for PD Frequency is shared, the Agent has, by far, the greatest opportunity to affect the trend in PD Frequency. This can be accomplished through:
Enforcing existing underwriting rules
Actively soliciting quality business
Actively re-underwriting existing business
Soliciting referrals from your BEST insureds

Loss Severity is often referred to as Average Cost Per Claim. This is under the direct control of the Claims Department, however agency claims practices can play a role in mitigating the size of a claim. For example, an agent that reports claims promptly, follows up with insureds, and shows compassion and support during the claims process, may very well reduce the amount of attorney penetration in the agency.