A combination of actuarial concepts and analytics techniques can be used to review old territory definitions for rating and underwriting. In this technique, new rating territories are defined using unsupervised machine learning algorithms, such as cluster analysis techniques, after applying principal of locality to increase the credibility of data – a concept discussed later in this paper. The goal is that the new distinct territories will display a lower variance within their boundaries. This would help the company ensure that they offer better-tailored premiums to their customers, more aligned with their geographic risk profiles.
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