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Mitigating Probabilistic Risks in Property Insurance

Outlining what claim professionals need to know about efforts to counter new trends toward underinsurance.

By Mike Fulton | Updated on May 23, 2010

Actionable data plays an essential role as policyholders choose the right amount of coverage to protect their homes in the event of a disaster. In today’s tumultuous housing market, current, reliable information is more invaluable than ever as property insurers work to alert policyholders to changing variables that could increase the likelihood that their properties are underinsured.

Certainly underinsurance is no new problem in the property insurance industry. In past years, insurers frequently encountered difficulties creating replacement-cost estimates that adequately addressed properties’ probabilistic risk. Only within the past decade have we been able to harness the power of enormous amounts of data containing construction rates and detailed structural information for millions of U.S. properties. Advances in analytical tools also enable us to drill down to specific zip codes so we can view local trends for common building materials and labor necessary to rebuild a structure. Thanks to these tools, we are now able to create a component-based estimate for a building that is based on costs being paid for actual claims in the area and supported by detailed construction market research.

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