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From PricingWiki

Personal lines and the London Market represent the two extremes of pricing work. Personal lines business has standard policies and coverage with a lot of data. Sometimes claims experience is allowed for within rating factors (eg a no claims discount scale). London Market business has variable and complex coverage (often unique to each policy) with little grouped data so is more often priced using actual claims experience for the policy (or group of policies) being priced.

Commercial lines business, by which we mean direct insurance sold to businesses via the company market, uses techniques used in both of the above markets, but in the main uses a blend of the two approaches.

Insurance sold to very small businesses and the SME market is often priced in a similar way to personal lines business, the only difference being the level of granularity of the rates (ie there are usually fewer rating factors). Over time we can expect more and more commercial lines business to be rated using personal lines techniques, in the same way that such techniques have spread throughout personal lines business.

Insurance sold to large corporate customers is often bespoke in terms of coverage, both extent and depth. As such it will be priced in a similar way to London Market business, with actuaries being asked to opine on various parts of the policy structure. Techniques used will be the same as in the London Market (not least because such business can be placed in either the conventional company market or the London Market, so it can be evaluated in a similar fashion).

However the bulk of commercial lines business is reasonably standard (in terms of ground-up coverage and steady limits) and lies somewhere between the two. It is expected that the end price will be a blend of the exposure (rated) price and the experience price; the key to pricing in this market is how the actuary and underwriter blend the two. Pricing in the commercial lines market is a partnership between the actuary and the underwriter, and it is critical that a sound working relationship is established between these two essential parties. Actuaries can help ensure that not too much reliance is placed on good claims experience and not too little on poor experience, and can use methods with a sound credibility basis that allows exposure and experience rates to be blended using mathematical credibility. The techniques used are very similar to those detailed in the CAS core reading, but essentially the bigger the risk and/or the more claims data available the greater the credibility. The use of such techniques is mathematically the same as assigning a return period to all large claims; this can help explain the techniques to the underwriting community.

If a sound blending basis can be put forward by the actuary and agreed by the underwriter it is possible to rate a large proportion of commercial lines business automatically, leaving just the larger cases requiring individual attention from both the underwriter and the actuary.

A comprehensive discussion of the methods used to price commercial business can be found in Michaelides et al.