Tuning up your auto insurance underwriting
Here's how non-rate actions fueled by the latest data can help improve profitability.
The effects of the pandemic have wreaked havoc on the health of many auto insurers’ books of business. From “boomerang kids” moving home to supply chain issues and widespread inflation, the lifestyle and economic changes of the past few years have created new challenges for achieving profitability.
Compounding the problem, some insurers paused or relaxed renewal underwriting programs during the lockdowns of 2020 and have struggled recently to obtain approval for proposed rate increases.
So how can the auto insurance industry improve its performance without increasing rates? The answer is simple: Tuning up their underwriting.
Significant sources of premium leakage
Just like a vehicle needs to be maintained over time, insured risks need to be assessed regularly throughout the life of a policy. Outdated information about personal auto insurance can lead to significant premium leakage. Here are just a few examples:
- Underreported mileage: Verisk research finds up to 60% of insured vehicles in the United States continue to have underreported mileage. Because higher mileage vehicles often have significantly more claims, underreporting can lead to both insufficient premiums and greater-than-expected losses.
- Undisclosed drivers: Whether it’s college graduates living with their parents or relatives who have evolved into long-term houseguests, household drivers not listed on policies remain a pain point for the industry.
- Garaging questions: Information on where insured vehicles are kept or garaged also is an ongoing challenge. After Hurricane Ian, many regional carriers who didn’t write in Florida were surprised to receive claims for vehicles damaged in the Sunshine State.
Plugging leaks isn’t always easy
Even if you know the main sources of premium leakage, it can be a challenge to identify and address them across a book of business with renewal analytics.
First, auditing every account in an insurance portfolio can be expensive and time-consuming. Not only do insurers need to license or develop the technology, they also need to figure out how to implement that technology quickly into their workflows to achieve a return on their investments. In some cases, insurers may not have the funding or IT staffing to roll out the analytics throughout their market. And there are policyholders they may not want to contact where relatively small premium increases could lead them to competitors.
Second, regulations for auto insurance rating vary by state and are constantly evolving. Many insurers may not have their own resources to ensure that premium changes at renewal are consistently in compliance in the states where they operate.
Finally, insurers need consistent messaging across multiple channels to conduct successful policyholder outreach. In-house customer service teams may not have the time or staffing to manage U.S. mail, email, customized websites, and inbound and outbound contact centers.
Considerations for evaluating a provider
Fortunately, some data providers can help insurers address the challenges of non-rate actions. Here are some qualities that insurers may want to consider when selecting a technology partner:
- Ease: A high-quality, non-rate action solutions provider can analyze an insurer’s entire renewal book with minimal IT resources and recommend which risks to audit, plus provide turnkey execution.
- Precision: It isn’t always practical to audit 100% of a renewal book. A solutions provider can work with insurers to select the top policies most likely to result in premium leakage recovery. Using analytics and estimates of recaptured dollars enables insurers to prioritize pursuit and fine-tune renewal underwriting programs based on budget and return-on-investment goals, while also balancing retention considerations.
- Flexibility: Insurers should be able to select from a variety of premium leakage analytics to use for non-rate actions, even customizing specific solutions in select states. Once insurance leaders experience the value first-hand, they may decide to expand the program to include additional sources of premium leakage, as well as into other less profitable states.
- Compliance: A specialized vendor can help ensure compliance with various state regulations, rather than relying on an ad-hoc, in-house approach.
- Professionalism: High-quality outreach should include options for U.S. mail, customized websites, and inbound and outbound contact centers. The channels should be managed to match an insurer’s branding and tone with thorough processes to sign off on all consumer-facing assets. A specialized provider can often yield better outcomes than repurposing the work of an in-house customer service team.
Brad Magick, CPCU, (brad.magick@verisk.com) leads the management of Verisk products for auto underwriting fraud, application and rate integrity, and book health. He oversees point-of-sale and renewal solutions, as well as advanced analytics that enable prioritized pursuit of premium recovery and policyholder outreach programs.
These opinions are the author’s own.
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