Aon Re Issues Global Study on Customer Catastrophe Segmentation

Aon Re Inc. has published the results of a study of companies that have implemented more sophisticated customer segmentation strategies over the past few years. The report concludes that overall returns for the personal lines property industry still lag behind the cost of capital, but “we are starting to see differentiating results between insurers,” according to Randall Brubaker, Aon Re Services Sr. VP. “This differentiation has been somewhat masked by the increased frequency of hurricanes during the past two years but the underlying progress is evident.

“It is clear that the core disciplines and customer segmentation tactics that are commonly utilized with personal lines automobile have improved the financial results of the non-catastrophe personal lines property business,” Brubaker continued. “The next phase of improvements in personal lines property will include substantial improvements to the disciplines and tactics associated with customer level segmentation on catastrophe risk. The current more active hurricane period has only accelerated the need to implement more sophisticated catastrophe based customer level segmentation strategies.”

The bulletin also noted: “The ability to pair the Aon Catastrophe Scores (sm) at the policy and location level with insurance, credit and other core multivariates will allow insurers to improve the quality of pricing for all of the risks insured within the policy. The Aon Catastrophe Scores (sm) also allow insurers to implement pricing and underwriting strategies that immediately reflect the significant learnings from the past two hurricane seasons, views on increased frequency levels and higher levels of capital consumed by property insurance writings. All catastrophe perils including hurricane, earthquake, fire following earthquake, tornado hail, winter storm, brushfire, flood and terrorism and other localized perils can be incorporated into Aon Cat Scores (sm).

“Aon Catastrophe Scores (sm) are based upon multi-model analysis for the unique portfolios of individual insurers. Aon Re has led the industry with applications of multiple catastrophe model processes to manage catastrophe pricing and underwriting. The results from the past two hurricane seasons have proven that multiple model strategies have been more predictive than the use of any one standard model. Catastrophe Scoring (sm) is the next step in developing services that represent a competitive advantage for Aon Re clients, through more predictive catastrophe pricing at the customer level.”

Michael Bungert, Aon Re CEO, commented: “The need to incorporate more sophisticated catastrophe underwriting and pricing approaches into customer segmentation models is clear. We are pleased that our continued investment in catastrophe modeling and our continuing significant investment in our own technical client service capabilities will make the transition into the next phase of underwriting and pricing sophistication easier for our clients and prospects.”