Navigating Uncertainty in Commercial Lines Pricing and Takeaways for PHI Pricing
Nieuws
14-10-2025
Tim Jenkins
At the 2025 All Actuaries Summit, Navigating Uncertainty in Commercial Lines Pricing: Innovative Strategies and Practical Implications tackled the challenge of pricing commercial line products where data is limited, skewed or untrustworthy, leading to unreliable or deviating model results.
The presenters proposed a structured framework for navigating these uncertainties, focusing on three pillars:
- grouping risks using expert view to increase data credibility;
- applying credibility weighting or penalties between data and prior knowledge to avoid overfitting; and
- communicating pricing uncertainty clearly to stakeholders.
This article recaps those key insights and explores how they can be practically applied to Private Health Insurance (PHI) pricing.
Key takeaway 1: Use credibility weighting on small portfolios
Sparse or volatile data can cause significant shifts in pricing models when left unchecked. To mitigate this, presenters recommended applying credibility weighting — shrinking results towards either:
- a national average (e.g., for smaller states with limited data); or
- prior relativities, reflecting historical pricing tuned by actuaries and underwriters over time.
This approach ensures pricing changes are data-justified and not driven by short-term noise (e.g., a single large hospital claim in a state with limited policy exposure).
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