Predictive Modeling and Scoring

ISO has long been a leading supplier of data, analytics, and decision-support products for professionals in fields related to risk.

Capitalizing on our expertise in those areas, ISO is developing practical tools for predictive modeling and scoring of risk. The effort draws on ISO's vast resources in:

• actuarial science
• data management and data integration
• modeling
• product development

Predictive modeling is the process of choosing data and mathematical formulas to predict a “quantity of interest.”  For an insurance company, a quantity of interest could be:

• the expected loss for a single insurance policy
• the expected loss for a group of policies or a book of business
• the probability that a particular claim is fraudulent
• any other quantity that will help an insurer make business decisions 

The model is a mathematical formula that takes predictors (or independent variables) and calculates the quantity of interest. The process of predictive modeling involves:

• gathering relevant data
• exploratory data analysis
• choosing a model
• testing the predictions of the model on other data

For ease of use, ISO often arranges our models to create numeric scores that customers can use in decision making. For example, a particular underwriting model might output scores of 200 (worst) to 800 (best). After considering the data and its own business objectives, an insurer might decide to reject risks below 660 and accept risks above.

Products and initiatives

Our ISO Innovative Analytics (IIA) unit has developed:

• ISO Risk Analyzer® Personal Auto — a predictive model that helps you classify, evaluate, and price your personal auto risks 
• ISO PreScreenTM Personal Auto — a tool that helps you target your marketing efforts to prospects that best fit your preferred risk profile
• ISO Risk Analyzer Homeowners — a powerful analytic tool that uses predictive modeling to examine hundreds of indicators that can affect homeowners risks and predict the noncatastrophe portion of expected losses at the policy level by peril 

We're also developing an underwriting model for commercial auto and a premium audit model for workers compensation.

Modeling catastrophe risk

ISO's sister company AIR Worldwide is the technological leader in catastrophe and climate-risk modeling. The AIR Research and Modeling Team includes meteorologists, climate scientists, geophysicists, seismologists, engineers, physicists, mathematicians, and statisticians. Drawing on all those disciplines, AIR pioneered the technology that has revolutionized the way insurers, reinsurers, and companies in other industries manage their catastrophe risk. 

AIR also models man-made perils. Managing risk from terrorism has, unfortunately, become an essential part of today's business decision-making process. In September 2002, AIR introduced the first terrorism model capable of quantifying the risk from this emerging threat.

For more information . . .
. . . about ISO's products and services, try our Product Finder. To ask a question, make a comment, or request service, contact ISO. You can also call us at 1-800-888-4476.