Zoning

In many insurance divisions, regional differentiation is not yet a market standard although the knowledge of possible advantages is not new. A professional zoning offers more than a visualization of regional claims patterns. Meyerthole Siems Kohlruss (MSK) has developed a zoning algorithm that - as a core element of a risk or pricing model - optimizes the regionalization of a risk. This approach has received the SCOR award for actuarial sciences in 2016. 

As a rule, a substantiated regionalization requires a high data density. However, with the help of the Delaunay triangulation, it is possible to take zip codes as the level of differentiation - resulting in an even finer distinction than what is practiced for instance in motor insurance. By letting the actuary calibrate various parameters, MSK's algorithm offers a model that is always statistically significant. With this algorithm, it is possible to produce regionalizations even for divisions such as legal protection insurance or commercial liability insurance.

As soon as some market players begin to use regional differentiations in pricing, the remaining insurers will have to follow them in order to avoid adverse selection.