Large Scale Analysis of Persistency and Renewal Discounts for Property and Casualty Insurance

In this paper, we study the issue of whether a price discount for renewal business is warranted for property and casualty insurance. The discount is motivated by the fact that new business with insurance coverage lapse, or new business in general, may perform worse than renewal business. The study is based on a total of 25 books of insurance business with a total amount of almost $29 billion of premium. The data cover all the primary property and casualty lines of business, including personal Auto and Homeowners as well as commercial Business Owners Policies, Auto, WC, GL and Property. The data do indicate that new business universally has a higher loss ratio and a lower retention rate than renewal business across all the 25 books of business. We will attempt to offer reasons as to why such difference exists between new and renewal business for insurance.

Keywords: Persistency discount, renewal discount, loss ratio, retention.