Project Management For Class Project Management For Class Plan ProjectsPlan Projects

CAS Special Interest Seminar on CAS Special Interest Seminar on Predictive ModelingPredictive Modeling

October 11-12, 2007October 11-12, 2007

Jonathan White

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Hope Is Not a Strategic PlanHope Is Not a Strategic Plan

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Project Management BasicsProject Management Basics

Set research project goalSet research project goal Define project tasksDefine project tasks Organize – work breakdown Organize – work breakdown

structure (WBS)structure (WBS)– Identify dependenciesIdentify dependencies– Sequence of tasksSequence of tasks– Resource requirements of tasksResource requirements of tasks– Duration of tasksDuration of tasks

Project schedule – Gant chartProject schedule – Gant chart Project milestonesProject milestones

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PlanningPlanning Clear understanding of the Clear understanding of the

business objectivesbusiness objectives– Where is the plan to be used – Where is the plan to be used –

Channel/state/Channel/state/– Marketing sourceMarketing source– Product/business expectationsProduct/business expectations– Current competitive positionCurrent competitive position– Implementation strategyImplementation strategy

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PlanningPlanning Clear research objectivesClear research objectives

– Statistical methodologyStatistical methodology– SoftwareSoftware– New data New data – New variablesNew variables– Scope of analysisScope of analysis– Required research infrastructureRequired research infrastructure

Research vision of end productResearch vision of end product IT / Operations / U/W … IT / Operations / U/W …

integrationintegration

DefinesResearchScope

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Balancing TriangleBalancing Triangle

SCOPE

RESOURCES TIME

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PlanningPlanning Environmental changesEnvironmental changes

– Business strategyBusiness strategy– RegulatoryRegulatory

VulnerabilitiesVulnerabilities– DataData– MethodologyMethodology– SoftwareSoftware

Research contingenciesResearch contingencies– What if xxxx does not work?What if xxxx does not work?

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Phases of a Class Plan ProjectPhases of a Class Plan Project1.1. PlanningPlanning

2.2. DataData

3.3. Equity ModelingEquity Modeling

4.4. SelectionSelection

5.5. ImplementationImplementation

6.6. MonitoringMonitoring

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DataData InternalInternal

– Previously usedPreviously used– NewNew

ExternalExternal– Hit rateHit rate

Understand the dataUnderstand the data Data qualityData quality Significant potential for delaysSignificant potential for delays

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Equity Modeling Equity Modeling Many times the simplest phaseMany times the simplest phase Modeling optionsModeling options

– RegressionRegression– Classification treesClassification trees– Neural netsNeural nets

Dependent variableDependent variable– Loss ratioLoss ratio– Claim frequency/claim severityClaim frequency/claim severity– Pure premiumPure premium

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Equity Modeling Equity Modeling Holdout sampleHoldout sample Threshold for variable inclusionThreshold for variable inclusion Statistical measures of overall Statistical measures of overall

model predictivenessmodel predictiveness DeliverablesDeliverables

– StructureStructure– Indicated factorsIndicated factors

Peer ReviewPeer Review

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SelectionSelection

Recent performance vs. Modeling Recent performance vs. Modeling indicationsindications

New plan vs. Old plan comparisonNew plan vs. Old plan comparison– DislocationDislocation– Conversations with the businessConversations with the business– Percentage change vs. Observed loss Percentage change vs. Observed loss

ratioratio Cost benefit conversationsCost benefit conversations

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Percentage Change Vs. Observed Percentage Change Vs. Observed LRLR

0.0

0.5

1.0

1.5

2.0

2.5

Largestdecr

2 3 4 5 6 7 8 9 Biggestincr

Decile by average change

Rel

ativ

e lo

ss r

atio

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Ave

rag

e ch

ang

e

Rel LR

Avg change

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SelectionSelection

Benefits analysisBenefits analysis Price optimizationPrice optimization

– Data requirementsData requirements– Analysis requirementsAnalysis requirements

Environmental changesEnvironmental changes– InternalInternal– ExternalExternal

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Benefits analysisBenefits analysis

Loss ratio/issue rateLoss ratio/issue rate RequirementsRequirements

– Equity model (indicated class plan)Equity model (indicated class plan)– Quote data - Issue rate modelQuote data - Issue rate model– Retention data - Retention rate model Retention data - Retention rate model

(if applied to renewal business)(if applied to renewal business)– Re-rating capabilitiesRe-rating capabilities– Competitor pricing data or proxyCompetitor pricing data or proxy

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ImplementationImplementation

Off-balanceOff-balance– Traditional – static environmentTraditional – static environment– Dynamic – reflect mix changesDynamic – reflect mix changes

Filing supportFiling support– What do you do when loss ratios don’t mean What do you do when loss ratios don’t mean

very much?very much? State exceptions – personal autoState exceptions – personal auto

– Credit, driving record, prior carrier infoCredit, driving record, prior carrier info– Balance efficiency and accuracyBalance efficiency and accuracy

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MonitoringMonitoring Key metricsKey metrics

– Loss performanceLoss performance– Issue rateIssue rate– Operational metricsOperational metrics

Importance of early readsImportance of early reads– Leading indicatorsLeading indicators

BenchmarksBenchmarks

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Loss Performance MonitoringLoss Performance Monitoring

Determine key variables/nichesDetermine key variables/niches Establish and calculate benchmarksEstablish and calculate benchmarks Look for leading indicatorsLook for leading indicators

– Claim frequencyClaim frequency– Stabile, quick settling coveragesStabile, quick settling coverages– Cap severityCap severity– Credibility weight observed with Credibility weight observed with

benchmarksbenchmarks

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Issue Rate MonitoringIssue Rate Monitoring

Leading indicatorLeading indicator Problem of quotesProblem of quotes Comparison pointsComparison points

– Prior planPrior plan– BenchmarkBenchmark

Do you believe the market or your Do you believe the market or your equity modeling?equity modeling?

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Hope Is Not a Strategic Hope Is Not a Strategic PlanPlan