Wheaton, Ill., March 14, 2011--A new by-peril rating plan for pricing homeowners insurance is now available in several states.

To date, the American Association of Insurance Services (AAIS) has filed its Homeowners By-Peril Rating Plan in nearly half the states and received several approvals. Soon, the plan will be filed countrywide.

AAIS is a national insurance advisory organization that develops policy forms and rating information used by more than 700 property/casualty insurers. However, any insurer can affiliate to use the AAIS Homeowners By-Peril Rating Plan.

The AAIS plan is the first such rating plan filed by an advisory organization on a countrywide basis and available to the industry. As filed, the plan lists base loss costs and rating factors for 10 different catastrophe and non-catastrophe perils, including rating information for several new variables.

The AAIS Homeowners By-Peril Rating Plan will be described at the upcoming AAIS Main Event conference, April 10-12 in Ponte Vedra Beach, Fla. For information on the conference, and to register, go to www.AAISonline.com.

Also, an introductory booklet on the by-peril rating plan is available to insurers interested in using the plan. To request a copy, insurers can contact Rick Maka, director of marketing and industry relations, at rickm@AAISonline.com, or by calling 800-564-AAIS, ext. 222.

Refined rating

"Clearly, the property/casualty industry is rapidly adopting ever more refined and granular rating of risks," says Paul Baiocchi, AAIS president and CEO. "We are very pleased to be able to offer our customers an industry-leading product that delivers a high level of pricing granularity supported by sophisticated analytics and risk assessment tools.

"With our product, AAIS companies will have the ability and the choice to price policies more precisely and minimize adverse selection.

"The AAIS By-Peril Homeowners Rating Plan is a leading plan for making by-peril rating available to homeowners writers of all sizes and capabilities," Baiocchi adds. "On behalf of our members and potential members, we bring together several resources to support this plan."

The AAIS resources behind the Homeowners By-Peril Rating Plan include:
• A comprehensive statistical database of several billion in annual homeowners premium;
• Modeled catastrophe data from two leading providers;
• Substantial amounts of acquired data on demographic, geographic, climatic, and other characteristics that are reflected at the zone and "subzone" levels;
• Sophisticated tools for data analysis, including the "Pretium" statistical platform developed by Towers Watson, and
• AAIS staff expertise in actuarial analysis, data management, and product development.

Precision and simplicity

"We have paid a great deal of attention to the architecture of the rating plan to facilitate automation and to make it easy for companies to modify or to overlay their own rating variables," says Baiocchi. "In that sense, we have developed what we like to call a 'smart' rating plan.

"The plan accomplishes this with a uniform set of rating processes that essentially use a standard single algorithm for calculating the charge for each peril," he adds. "Having a single algorithm makes it relatively easy to automate the plan, and to substitute different perils in regions where they are appropriate.

"The plan provides additional flexibility by including built-in placeholders where companies can input their own rating variables."

Benefits beyond rating

According to Baiocchi, the AAIS Homeowners By-Peril Rating Plan provides numerous benefits to insurers, even if they don't immediately use it to change their homeowners policy rating.

"For example," he says, "the high level of detail provided by the plan will allow carriers to analyze their homeowners books of business to determine where they might be overexposed to certain perils.
"This information can also be useful in guiding a company's marketing strategy to improve spread of risk and underwriting results.

"Also, the inclusion of catastrophe information makes this plan a valuable tool for analyzing a company's cat exposure and making more informed decisions regarding reinsurance purchases."

Property/casualty insurers interested in affiliating with AAIS for use of its Homeowners Program and Homeowners By-Peril Rating Plan can contact Rick Maka, director of marketing and strategic alliances, at rickm@AAISonline.com, or by calling 800-564-AAIS, ext. 222.