Predictive analytics and experienced underwriting judgment are a powerful combination.

In the report Linking Predictive Analytics and Underwriting at Freedom Specialty Insurance Company, Celent explores how Freedom Specialty Insurance built, refined, and sustained a predictive analytic underwriting platform.

Directors & Officers (D&O) is a specialty insurance product which provides indemnification for legal expenses and liability judgments when a policyholder is sued for negligent, reckless, or bad faith actions or omissions in the course of performing their duties. In determining the pricing, limits, and availability of this coverage, an underwriter considers multiple aspects involving the specific individual, their company, and the likelihood of legal actions (lawsuits).

In 2008, Scottsdale Insurance Company entered the D&O market and invested in a risk selection approach that fed external data to a predictive model in order to compliment underwriting intuition. ”The timing of their decision was interesting,” says Mike Fitzgerald, Senior Analyst and author of the report. “There was not an abundance of confidence in management performance as the American economy was collapsing. Their results, however, speak for themselves.”

This case study identifies lessons that others can use to harvest the benefits of analytics in their underwriting operations.