API 29 - CH 6

3 Tools/Approaches to Identify Root Causes

1. "Five Whys" 2. Root Cause Analysis 3. Common Cause Analysis

Steps to Reunderwite a troubled portfolio

1. Analyze the portfolio 2. Identify & distinguish problems 3. identify possible corrective actions 4. Select corrective actions 5. Implement corrective actions 6. Monitor the portfolio

Root Cause Analysis Steps

1. Clearly define the undesired outcome 2. Gather data, including a list of all potential causes 3. continue asking "why to identify root causes 4. Check logic and eliminate items that are not causes 5. Generate solutions that address the visible causes and root causes.

Approaches in Evaluating Portfolio Management Methods

1. Credit-related u/w and pricing 2. Modeling 3. Outsourcing data collection 4. Increasing data collection needs

Steps of Change Analysis

1. Describe in writing the problem situation, including timing, personnel, equipment, procedures, physical surroundings, & event severity. 2. Describe a similar event in which the problem did not occur. To the extent possible choose a situation in which the circumstances described in step one were the same. 3. Compare the two situations, and note any differences regardless of how slight they might be. 4. Group the differences to the extent possible according to the items in step 1. 5. analyze the differences to identify their effects on the problem situation. 6. Add contributing differences to casual factors (in an event and casual chart or tree) being considered in the overall analysis.Mary

Elaborate Tools used in Root Cause Analysis

1. Event and casual factor charts 2. Change analysis 3. Barrier analysis

Elements of Catastrophe Models

1. Geographic Location 2. Type of Catastrophe 3. Exposure information (specific data on bldg construction, etc.) 4. Replacement cost estimates

Identifying and Evaluating Root Cause(s) of Portfolio Performance Problems

1. Identify potential causes of the problem 2. Analyze data to confirm the cause of the problem 3. Identify & recommend changes in product, underwriting, or pricing in meeting the policy count or profitability goals.

Tools & Approaches to Evaluate a Portfolio

1. Make assumptions and work with imperfect data 2. Apply a Root Cause Analysis tools and approaches 3. Apply reunderwiting tools and approaches to the portfolio

Catastrophe Modeling Components

1. Science Component 2. Engineering component 3. Insurance Component

Benefits of Event & Casual factor Chart

1. Shows the sequence of events from beginning to end 2. Stimulates identification of additional information as it is being developed 3. Incorporates other data & information 4. Contributes to objectivity

Steps to "Five Whys"

1. Write down the problem, describing it completely so those considering it can have a common understanding 2. Ask why the problem happens and write down the answer directly under the problem described 3. If written answer doesn't explain the root cause of the problem, ask why again, and write answer 4. Repeat step 3 until satisfied that the cause has been identified.

Credit Scoring

A decision making tool that uses credit report info to develop a predictive score on the creditworthiness of an applicant for additional credit.

Event and Casual Factor Chart

A horizontal flowchart that shows the chronological sequence of events and facts leading to a problem situation.

Root Cause Analysis (RCA)

A step-by-step evaluation method to identify the root cause of an undesirable outcome and the actions that can be taken to prevent its recurrence.

Change Analysis

A systematic process used to analyze a single event, focusing on conditions or elements that changed and because casual factors. Compares two similar occurrences, one with the problem occurring and the other w/o it occurring. The objective is to identify the similarities and differences between the two occurrences.

"Five Whys"

A very basic approach to identify root causes by repeatedly asking "why?" 5 is not a magic number, just means to ask as many questions as needed to get answer. Ask why more than once. Can be helpful when a cause is not obvious, a new cause is emerging, or a cause is hidden.

Common Cause Analysis

An analysis of root cause analyses for a given period to identify themes and trends in an organization's operations that should be addressed strategically.

Fix it Twice Approach

Analysis tools & approaches frequently reveal both visible causes and underlying root caused. Given two levels of causation, sometimes it is important to fix the problem twice: first at the visible level and then at the underlying root cause.

External Reports

CLUE, inspections, etc. used to effectively manage book of business

Key to Effective Modeling

Data Mining: to extract large amounts of data so that it can be evaluated to uncover patterns or recurring results in such areas as claims and loss reserve analysis, sales trends, and customer profitability

Modeling

In data analysis, as system of calculating know outcomes based on current data and then applying these calculations to new data to predict future outcomes.

Output from Catastrophe Models

Provides an estimate of average annual loss potential and/or probable maximum loss amts for natural catastrophic events.

Identifying the Need for Portfolio Underwriting

Sources used to identify need: 1. report variations 2. underwriting audits 3.new business reviews 4. loss reviews 5. special event reviews.

Barrier Analysis

The objective of a barrier analysis is to identify whether a barrier to an event was in place, whether it functioned as intended, and if not, why did it fail to perform

Reunderwriting

The process of evaluating the policies within a portfolio against their goals, identifying causes of under-performance, and implementing corrective actions

Predictive Modeling

Used to analyze a book of business to determine future losses and profitability. portfolio managers can examine specific variables to generate scores and project future results. Can expose potential problems in existing book of business, determine eligibility requirement for prospective customers, assist marketing in segmenting prospective customers & niche markets.

Catastrophe Modeling

Used to simulate events to measure expected future losses based on the insurer's book of business. Inputs (insurer supplied data) -- Components -- Output

Predictive Variable Information

Variables can be refined to give more concise info on various trends. Variables can include type of roof, age of home, etc.

Underwriting Audits

are used to determine whether new business meets established u/w criteria. U/W audits are conducted by staff members responsible for both u/w goals & performance. Provides feedback & instruction regarding changes in activity that might help improve decision-making skills & help identify trends in new business.

Credit based insurance scores

provides several advantages for insurers, because studies have established the correlation between credit scores and loss potential, credit based scores allow insurers to improve rating methodologies & develop premiums that are commensurate with expected loss levels

Risk Profile Reports

review of claims of a specific risk profile to analyze results on smaller segments of business w/i a business to determine which claims to review.

Price Optimization Models

use predictive methods to determine appropriate pricing based on customer data and the insurer's profitability goals. Use to select more profitable business, reduce marketing expenses, & reduce the number of applications that are declined.

Outsourcing Data Collection

using third party vendors allows insurer advantage of gathering more data & potential for lowering expenses. info & services provided by external sources can include: *Information verification * Subject matter experts * External reports