A few months ago, I read this article:
As I read it, the presumption of the article was that profitability is dependent almost entirely on rating, predictive modeling, etc. methodology deficiencies.
I did not see any explicit consideration given for coverage variations between insurers or their claims practices, though that admittedly was likely not the premise of the article. But, if an insurer is selling inferior coverage and/or engaged in restrictive claims practices, that can potentially have a far more dramatic impact on the loss ratio than a rating model and is worthy of mention.
For example, the ISO business auto policy covers loss arising from loading and unloading by hand or mechanical device attached to the vehicle. I know a non-ISO insurer that says their auto policy does not cover loading and unloading at all.
I know anecdotally of a carrier that, when a liability claim is filed against an insured, routinely takes the position that the other party is X% at fault, resulting in a reduced claim payment that is likely not large enough to litigate, but can result in substantial savings across an entire book of business.
I’m not saying that accounts for the differences enumerated in the article, given that the author identifies insurers by name, but that possibility did not appear to be considered at all as a cause of variations in profitability in the identified insurers.
A similar article was published by J.D. Powers in 2017 that made conclusions about insurer profitability without considering at all that one reason for superior profitability could be inferior coverage and more stringent claim settlement practices. I wrote about it here:
I remember reading an article authored by someone from a nonstandard auto insurer that touted their remarkable profitability and attributed it to brilliant management, extraordinary analytics, and a host of other reasons, but no mention whatsoever of the FACT that their policy was vastly inferior to others in the marketplace (I say “FACT” because I had a copy of their form) and their pricing reflected that of a market of last resort (not to mention anecdotal tales of their claims practices).
Caveat emptor. In the words of legendary salesman, Morty Seinfeld:
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