Fleet renewal: telematics signal versus portfolio rate need

Step 1 – establish the benchmark. The portfolio indication of +9.5% is an average across 210 fleets. It combines frequency +3%, bodily injury severity +7%, and other lines. I would not apply it mechanically to this account.

Step 2 – on-level and develop the account experience. The three-year loss ratio of 74% must be restated to current rate levels, current exposure (1,200 vehicles, mileage, radius) and current claims inflation. Large losses should be separated: with a £2m per-risk retention, the insurer only retains the first £2m of any loss, so the account's large-loss experience should be capped at £2m and the reinsurance cost treated separately. If the 74% is not on-level, the true indication could move by several points.

Step 3 – credibility. A 1,200-vehicle fleet over three years gives a moderate but not large claim count. Using a Bühlmann-type credibility, the account experience might get 40–60% weight against the book's 68% loss ratio. Since the account is worse (74% vs 68%), the account indication should be above +9.5%, not below.

Step 4 – telematics. Only 40% of vehicles are fitted. If the fitted vehicles are the better risks, the telematics result is selection-biased. Harsh braking down 18% is a positive frequency signal; night mileage up 11% is negative for severity and frequency. Without matched claims data by cohort, I would give the telematics signal limited credibility (perhaps 10–20% weight) and use it as a condition, not a discount. It can support a telematics-based pricing structure and a claims-management action plan.

Step 5 – reconcile. If the book target loss ratio is 68%, the account at 74% needs roughly 74/68 - 1 = +8.8% just to reach the book average, before the +9.5% portfolio trend. That points to an account indication in the region of +15% to +20%, not flat. A flat renewal at a 74% loss ratio plus 24% expenses is already close to a 98% combined ratio, leaving no margin for capital or volatility.

Conclusion. Provide a range, e.g. +12% to +18%, with a central view around +15%, conditional on telematics rollout to 70%+, a higher deductible, and a night-driving management plan. Flat renewal is below the technical price and should be recorded as a commercial decision, not an actuarial recommendation.

What the underwriter is asking for. A single 'lowest technically defensible' number is not the right output; the actuary should give a floor with the assumptions that make it defensible.

Build the floor from the target return. At current rates the expected loss ratio is 74%. If the target loss ratio is 65% (to cover 25% expenses, reinsurance and a 10% cost of capital), the required rate change is 74/65 - 1 = +13.8%. At a target of 68%, it is +8.8%. Because this account is 6 points worse than the book, the floor should be at least +12% to +14%.

What would justify a lower floor? Only real risk reduction: telematics fitted to all vehicles with a validated 15%+ frequency benefit; a £250k deductible; exclusion of high-hazard night work; a claims-handling agreement; or a multi-year commitment that reduces acquisition cost. A competitor quote at -5% is not a reason; it is a market signal.

Set the walk-away. The walk-away price is where the risk-adjusted return falls below the capital hurdle, not merely where the loss ratio exceeds 100%. For a £6.2m account with a £2m retention, the capital at risk is modest, but the aggregate stop-loss at 85% ELR means a worse-than-expected account could erode the stop-loss deductible and affect the whole book. I would quantify the marginal impact on the aggregate cover and on the 1-in-200 capital.

Caveats to state. The floor is sensitive to: (i) whether the 74% is on-level; (ii) the treatment of large losses; (iii) the credibility of telematics; (iv) expense allocation; (v) the cost of reinsurance. It is valid for one year only and should be refreshed if exposure changes. I would not sign a 'lowest price' letter; I would sign a technical pricing memo with a range and conditions.

Record. A technical pricing note should include: data used; on-levelling; development; large-loss treatment; credibility weighting; telematics analysis and its limitations; expense and reinsurance assumptions; indicated range; conditions; and the commercial decision if the final price is below the indication. Record the broker's competing quote as market intelligence, not as an assumption. Retain the version that was sent to the underwriter and the CUO.

Communicate to the CUO. Keep it to one page: technical indication +15% (range +12% to +18%); flat renewal is 15 points below technical; at flat, expected combined ratio is ~98%, leaving no profit; a -5% renewal gives ~103% combined and consumes capital. Show the reinsurance interaction: a worse loss ratio may erode the aggregate stop-loss and increase the cost of the whole programme. Recommend: authorise a renewal at +8% to +12% with telematics conditions, or decline if the broker will not move. Ask the CUO to confirm the risk appetite for a strategic account.

Escalation. If the CUO overrides and writes flat, the actuary should document the advice and the decision. It is not necessarily a breach if the decision is within delegated authority and the board is aware, but the actuary must not misstate the technical view. If the account is material to the solvency or to the aggregate cover, escalate to the Chief Actuary and the Risk Committee. If the CUO asks the actuary to sign a paper saying the price is technically adequate, refuse and provide a separate note explaining the basis of the recommendation.