Imagine a scenario where auto insurance carriers have access to a vehicle’s physical attributes—make, model, mileage and color—but NO idea who the driver is. The drivers included in these policies may be teenagers or even those with serious violation histories – and insurers would be expected to accurately predict loss ratio risk without that critical component. As we know, it’s impossible to be an effective, competitive underwriter without reliable driver information – among other limitations throughout the policy lifecycle.
Turning our attention to habitational insurers, until recently, commercial insurance pricing and risk segmentation were based solely on traditional variables, such as location, prior losses and property characteristics. This approach virtually ignored the basic tenet of insurance underwriting which requires a reliable measure of the likelihood the occupants will create an insurable loss.
In today’s market, many underwriters are forced to rely on discretionary pricing using antidotal information, such as crime and rental rates as a measure of the occupant risk. Crime rates paint everyone in the same market at the same risk level creating poor segmentation. The use of rental rates for commercial habitational insurance applies a broad property classification that doesn’t accurately assess insurance risk. Just because a property has a low rental rate doesn’t mean it’s a higher insurance risk. As a result of these flawed practices, many insurers exclude good markets and inaccurately price properties.
Fortunately, auto insurance carriers have driver data and habitational insurance carriers now have the ability to effectively measure insurance loss ratio risk based on the occupants of their commercial and residential properties.
TransUnion’s Habitational Risk measures occupant insurance risk based on known, predictive insurance loss indicators of the actual occupants.
Now imagine if you could unlock this new, powerful occupant information on all of your lost customers, quotes not bound, or new markets for lead generation. If you’re like most carriers in the 4th quarter, you’re looking for ways to fill premium gaps. Habitational Risk is a powerful, innovative solution that helps insurers fill those gaps with profitable business.
Habitational insurers need more reliable occupant information to improve underwriting efficiency and effectiveness that leads to better performance.
Without access to occupant data, performance can be inconsistent and unpredictable because:
- Underwriters lack accurate tenant loss propensity data
- Underwriting is a more costly and inefficient process
- Underwriters lack insights into changes in risk
Habitational risk scoring, based on actual, aggregated occupant information—rather than a broad-brush approach using measures such as crime rates or rental rates—improves pricing accuracy. Additionally, Habitational Risk Scores are based on current occupant information allowing underwriters to price with confidence and focus on the most problematic properties. This confidence can open new markets for insurers that are traditionally ignored.
As an example, let’s review a market in the lower income area of Los Angeles. TransUnion scored all the multi-family properties within the market with our Habitational Risk Score.
There are many different types of exposures that location information alone cannot effectively predict. Accurate occupant scoring and monitoring can provide insight throughout the policy lifecycle.
While occupant changes are expected, how do these occupant changes impact the insurance risk? Today, many insurers are in the dark as to changes in risk within their portfolio.
The advantages of leveraging Habitational Risk on renewals include more accurate renewal underwriting and portfolio management.
While occupant changes in habitational properties are expected, specific changes in risk can be unpredictable. Most properties don’t have a significant change in insurance risk from year to year. However, a small percentage of properties do change for better or worse. Empowering your underwriting team with that knowledge allows them to focus precious time on policies that have changed in risk.
A property score may not change dramatically, but one individual property management problem can yield an annual drop rate in occupancy. It’s critical to monitor for occupancy changes to improve underwriting accuracy. Drops in occupancy make a property more likely to pick up riskier tenants, and vacancy leads to higher weather, mold and water damage issues.
Habitational Risk generates scores based on predictive analytics of the actual occupants rather than treating properties all the same based on limited, traditional means. The use of predictive analytics can open markets and increase competition by reducing potential bias in risk segmentation.
Join me for my upcoming webinar: The Habitational Occupant Factor to learn more about TransUnion’s Habitational Risk Score and to discuss how you can gain profitability through predictability with a new, more effective habitational risk plan. Register now!
1 TransUnion internal analysis 2017