CAS Ratemaking Working Group Issues Request for Proposals on Severe Convective Storm Exposures

The CAS Ratemaking Working Group is issuing a Request for Proposals (RFP) seeking research related to methods and techniques that incorporate exposures related to severe convective storm in the ratemaking process.

Casualty Actuarial Society (CAS)

The CAS was organized in 1914 as a professional society for the promotion of actuarial and statistical science as applied to insurance other than life insurance, such as automobile, liability other than automobile, workers compensation, fire, homeowners, commercial multiple peril, and others. Such promotion is accomplished by communication with those affected by insurance, presentation and discussion of papers, attendance at seminars and workshops, collection of a library, research, and other means. The membership of the CAS includes over 10,000 actuaries worldwide, employed by insurance companies, industry advisory organizations, national brokers, accounting firms, educational institutions, state insurance departments, the federal government, and independent consultants.

Ratemaking Working Group

The Ratemaking Working Group addresses actuarial issues of property and casualty insurance ratemaking including risk classification. The committee's charge includes furthering the development and dissemination of ratemaking theory and principles; identifying topics for research and discussion; monitoring professional developments and regulatory activities; and sponsoring panels, seminars, and other public forums on ratemaking issues.

Research Problem Description

Developing rates for property products which are impacted by severe convective storms (“SCS”) can be challenging.  SCS events can cause damage to insured properties stemming from multiple natural elements including lightning, tornadoes, hail, and straight-line wind, all of which are difficult to predict from a ratemaking perspective.

Pricing for SCS events is further complicated by changing climate conditions, expanding exposure landscapes, changing portfolios over time, limited accuracy of vendor-based catastrophe modeling for SCS perils, increasing insurer retentions for CAT-exposed programs, the increasing cost of capital in the current inflationary economic environment, and the shrinking availability of affordable reinsurance.

The group is, therefore, seeking to broaden the available material on the topic of pricing for SCS exposures addressing the following:
Primary Carrier Perspective

• Reliance on alternative data sources available to carriers such as meteorological surveys when considering provisions for SCS exposures in the ratemaking process
• Loss cost development studies that incorporate SCS exposures distinct from standard vendor-based catastrophe model output
• Incorporating SCS loss costs into non-by-peril rating
• Adjusting for portfolios changes such as growth in a new geography and expanding landscapes
• Procedures to test the adequacy of rates for SCS exposures such as comparing actual experience to historical projections and/or other benchmarks

Reinsurance Implications

• Accounting for reinsurance costs in premium related to SCS exposures
• Impact of reinsurance availability at affordable prices
• Managing the cost of capital for high frequency, lower severity SCS events that typically fall below the threshold of most reinsurance CAT treaty attachment points

Proposal and Work Product Requirements

We are seeking researchers to develop a paper outlining ratemaking approaches for SCS perils that might consider some of the challenges set forth above, such as alternative data sources, reliance on methods other than standard vendor-based catastrophe modeling, portfolio changes and related reinsurance implications.

Methods should have sound mathematical foundations, rooted in established principles of ratemaking, with an emphasis on SCS perils. With that understood, the techniques within a method should be intelligible to an actuary working in property insurance pricing and should not pre-suppose extensive familiarity with advanced topics. Moreover, methods and processes should be explainable to insurance industry decision makers who may not have the experience or education of the actuary conducting the work.

In addition to producing a research paper that will be published by the CAS, the selected researchers should also deliver an executive summary of the paper (two-three pages) that would be suitable as a blog post or magazine article. This summary should highlight the key themes of the paper and be understandable by a non-technical audience.

The work product will include any and all computer programs (code) used to perform the research.  The purposes of this are twofold - to better enable peer review of the research by the CAS and to facilitate the adoption of this research by CAS members.  To aid research adoption, the code will also be placed in the CAS’s GitHub repository, https://github.com/casact, under the MPL2.0 license.

Proposals should include a clear outline of the work that will be performed and the time frame in which it will be performed (including key dates). The proposal should be accompanied by the resumes of the researcher(s), indicating how their background, education, and experience bear on their qualifications to undertake the research.

The CAS contract will be awarded to the respondent who — in the judgment of the Ratemaking Working Group and entirely based on their written proposal — is best able to perform the work as specified herein. If the group determines that no proposal meets the requirements of the RFP, then no contract will be awarded.

Receipt of proposals will be acknowledged in a timely manner. Respondents who are not awarded the contract will be informed shortly thereafter.

Interested researchers should submit their proposals and any questions to:
Elizabeth Smith, Director of Publications and Research
Casualty Actuarial Society
esmith@casact.org

Timeline

Compensation

Compensation to researchers will be commensurate with the time required to carry out the work. Respondents should include an estimate of cost in their proposals. Total cost should not exceed $45,000.

Presentation, Ownership and Publication of Report

As a condition of selection, the CAS requires that all right, title, and interest, including copyright and patent, in and to the report and executive summary be owned by the CAS. The selected researcher/research team must sign a formal research agreement that assigns all such rights to the CAS. In any publication of the report and summary, the researcher(s) will receive appropriate credit with regard to authorship. The CAS may publish the report and summary in their entirety, or any sections thereof, in any format and medium as it finds fit, including but not limited to CAS publications, and digital versions such as on its Web site.

The researcher(s) should make every effort to be available to present the report at a CAS meeting or seminar.