Adapting Long-tail Pricing Models:Scope for shared learning – India & China

2014 CICIRM, July 23-26, 2014, Shenzen, China

By: Praveen Gupta

The Roadmap

• WHAT’s the challenge?1

• WHY does it need to be addressed?

2• HOW could

it be done?3

The Challenge

• Adapting long-tail liability class in a new jurisdiction, for the first time

• Key issue: Pricing - no past experience on frequency & severity of claims. Adapted from overseas environment

• Rise of Tort and beyond: To test pricing adequacy

• What do markets do to avoid rude shocks - in - making?

• Dealing with rub - on - effect of pricing pressures from short tail classes

• Despite significant differences, there is lot for China & India to collaborate

Why?

• Manufacturing Consumption

• As we bridge this gap the risks will be those manifesting in domestic market, not overseas location

• At best global programmes of multinationals originating from these countries

• Pricing increasingly a function of local demand and playfield

• Understanding local dynamics and flux

• Balancing what you can change & what the market wants

• Multipliers: HK Auto Unlimited TPBI

• Retroactive focus: Class action & much more: India

• Buildup of systemic Toxicity: HIH look remote!

• Mitigating potential surprises

• The two could be the largest liability markets in the world

• As the markets grow there may be a temptation towards higher retentions

How?

• Rise of tort/ consumerism: cycles in two societies may be different

• Need to understand emerging societal character & personality

• Building knowledge pool best practices

• Reserving practices

• Awards & judgments

• Management expenses

• Reinsurance cost & quality

• Acquisition cost

• Inflation

• Investment income

• Regulatory controls

• Legal expenses

• Servicing capability

• Demand & popularity of the products

Road ahead

• The two societies may be overtly very different

• Change will drive convergence for common needs to deal with challenges

• From big data, practices, processes, knowledge the list of collaboration could be very comprehensive

• Time starts now!

Thank You