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Commercial Residential Insurance – 2019 Predictions

Anthony Sullins
Blog Post02/15/2019
Business
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The insurance market is more competitive than ever. Insurers are seeking new, profitable markets to off-set recent weather-based property losses.1 Based on eight-year trends in habitational risk performance, insurers should consider opportunities in both personal and commercial residential lines in 2019.

There are three major trends, based on TransUnion’s Habitational Risk Score analysis1, that will impact insurance profitability for commercial residential properties in 2019:

  • Habitational Risk Score improved 9% from 2010 to 2017 to 617, with 62% of properties having scores over 600 last year
  • Average occupant age rose 7% since 2010 to 47.9 years-of-age in 2017
  • Average occupant tenure rose 34% since 2010 to 74.27 months in 2017

Let’s look at how each of these trends may influence insurance loss ratios in 2019.

Habitational risk improving

Commercial insurance, occupant based habitational insurance risk score is improving, leading to better non-weather loss ratio performance1. Based upon aggregated results, the average insurance score has improved from 566 in 2010 to 617 in 20171.

Additionally, the percentage of buildings having scores below 600 has dropped from 56% to 38% for this same time period1. Not only will these improving scores likely produce better loss ratio performance, the market has expanded with more profitable properties to insure.

Habitational Risk ScoreHabitational Risk Score Trends, 2010-2017

Source: TransUnion analysis
Note: TransUnion Habitational Risk Score measures the insurance loss propensity of occupants residing in commercial residential properties.

What’s driving these changes in habitational risk?

Since 2010, we’ve seen consumer lending delinquency rates decrease across all lines, according to the Q2 2018 TransUnion Industry Insights Report. Consequently, the risk associated with commercial residential properties has improved1.

Occupant age increasing

Occupants in commercial residential insurance markets are shifting toward better insurance scores. At the same time, their average age is increasing1. The average occupant age in commercial residential properties rose 7% since 2010, creating a greater insurance opportunity for personal lines writers.2

Many insurers have ignored this market. The perception is that the occupants living in these properties do represent significant insurance market potential and have low life time value. However, insurers should look to this segment for possible growth. Given the shift in age and insurance scores, these occupants may have more assets to insure, higher insurance purchasing power, and higher profitability.

Average Occupant Age by Year

Age Calendar Year
Quartile Level 2010 2011 2012 2013 2014 2015 2016
90% 58 60 61 62 62 63 63
75% 49 51 51 52 52 53 53
50% Median 43 44 44 44 44 45 45
25% 38 38 39 39 39 40 40
10% 35 35 35 35 35 36 36
Average Age 44.77 45.75 46.08 46.40 46.68 47.38 47.89

 

Source: TransUnion analysis.
Note: Data complied using aggregated habitational retro analysis for 350,000 commercial properties. Quartile level measures rank of data from top to bottom.

What’s driving these changes in occupant age?

We see a shift in occupancy age across all age groups. The US population continues to age, which logically may mean an older renter population3. One segment raising the average age is middle-income Boomers, who average 62 years of age, making up 11% of all renters4.

Occupant tenure increasing

The average occupant tenure has increased from 55 months in 2010 to 74 months in 2016, a 34% increase2. With the average increase in occupant tenure in commercial residential properties, personal lines insurers should expect to see higher retention and life time value of their personal lines renter’s insurance programs.

Commercial lines insurers should also take note of this trend. Property maintenance in these long-term rentals can be an issue. Avoid potential non-weather water issues associated with leaking appliances and washing hoses breakage by focusing on property maintenance history.

Average Occupancy Tenure by Year

Age Calendar Year
Quartile Level 2010 2011 2012 2013 2014 2015 2016
90% 85 93 98 106 109 114 120
75% 67 73 77 85 86 90 94
50% Median 53 56 59 65 66 67 69
25% 43 44 46 50 51 52 53
10% 30 31 33 36 36 35 35
Average Age 55.62 59.41 63.01 68.50 69.42 71.60 74.27

 

Source: TransUnion analysis.
Note: Data complied using aggregated habitational retro analysis for 350,000 commercial properties. Quartile level measures rank of data from top to bottom.

What’s driving these changes in occupancy tenure?

Half of all apartment renters represent population segments that tend to longer occupancy5.  Older renters with specific life-styles or at mid-life stage tend to renew leases more5. Also, regions with high barrier-to-entry for home ownership tend to see couples in their 30’s renting longer5.

Residential insurance primed for profitable growth in 2019

Overall, both personal lines and commercial lines looking to expand their customer base and grow customers should be focusing on commercial residential insurance. With improving insurance scores, older mature occupant base and higher occupant retention ratios means that commercial residential properties should be a high priority for insurers in 2019.

1 TransUnion analysis.
2Insurers, Reinsurers expected to weather 2018 catastrophic losses. Insurance Journal. 11 Oct 2018. https://www.businessinsurance.com/article/20181011/NEWS06/912324525/Insurers,-reinsurers-expected-to-weather-2018-catastrophe-losses-S&P
3The U.S. Joins Other Countries with Large Aging Populations. 18 Mar 2018.
https://www.census.gov/library/stories/2018/03/graying-america.html
4TransUnion analysis. Data complied using aggregated habitational retro analysis for 350,000 commercial properties.  Quartile level measures rank of data from top to bottom
5Who are today’s apartment renters? Realpage. 8 Oct 2018
https://www.realpage.com/analytics/who-are-todays-apartment-renters/

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