Uncovering occupant data to reap commercial underwriting rewards
Here are three ways to improve commercial underwriting with analytics and occupant information.
You could say that commercial insurance is at an inflection point. Catastrophic losses in 2017, and again in 2018, driven by natural disasters such as hurricanes on the East Coast and destructive wildfires on the West Coast have weighed heavily on industry profitability. The market remains well-capitalized, but commercial insurance pricing has been rising in response to these losses. In fact, commercial pricing rose by nearly 4% in the second quarter of 2019.
Reflexively, insurers have raised premiums in response to recent weather-related asset losses. However, the close time proximity of these extraordinary events is putting more pressure than ever before on long-term profitability. Furthermore, continuous pricing increases don’t seem sustainable.
With an eye to setting a stronger foundation for profitability, insurers should focus on achieving operational excellence in their underwriting processes. Using sound underwriting fundamentals, and more specifically, identifying more surgical risk segmentation by applying analytics, is the way forward.
Add occupant data to commercial habitational operations
You can’t control the weather, but you can open the door to more profitable and efficient day-to-day operations by incorporating occupant data in your underwriting process. In the next two years, a large percentage of insurers are looking at analytics to improve loss ratio performance and process efficiency to support top-line profit and growth across a number of areas, including:
- Triage to identify complex claims (80%)
- Understand risk drivers (20%)
- Reduce processing time (49%)
- Identify high-risk cases (45%)
- Build better risk models (45%)
Three ways to use occupant information today
Insurers incorporating occupant information in their commercial and residential underwriting have the potential to reap huge rewards. According to internal data from TransUnion, in conducting a commercial insurance research study, when included as a rating variable in commercial and residential rating plans, occupancy data has shown to generate a pure premium lift between 200-300% for the best versus worst scoring deciles. Here are three ways insurers are improving commercial underwriting with the use of occupancy data:
1. Pricing segmentation based on loss propensity
Commercial occupant risk scoring allows insurers to segment properties that have the highest propensity to incur an insurance loss. Such scoring allows insurers to better match price and risk, improving loss ratio performance.
2. Renewal segmentation based on changes in risk
Mitigate risk during renewal by gaining a clearer understanding of occupancy trends or changes in overall risk profile. Understanding these changes can help prioritize which commercial policies will require more time and effort to renew, improving overall profitability.
3. Loss control segmentation based on occupant risk
Set loss control thresholds for commercial properties by incorporating occupant risk. Focusing loss control on the commercial properties with the highest potential for claims allows insurers to be more effective at mitigating losses.
Setting a strong foundation for commercial underwriting
If the past few years are any indication, commercial insurers will continue to experience unforeseen volatility from increasingly unpredictable weather events. To mitigate some of those losses, forward-thinking insurers should focus on analytics to streamline their underwriting operations and achieve maximum profits.
A great place to lay a foundation for the future of commercial underwriting is with predictive analytics that leverage occupant information. In doing so, you’ll be knocking at the door of greater profits and operational efficiency before you know it.
Patrick Foy is director of commercial lines insurance at TransUnion. He has more than a decade of experience in insurance & financial services, having worked previously in personal and commercial lines product management roles with Nationwide Insurance and CSAA Insurance Group. Foy holds a bachelor’s degree in economics from Davidson College and an MBA in Finance from The Ohio State University-Fisher College of Business. Opinions expressed here are the author’s own.
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