Habitational Risk Score: Five Years of Transforming Commercial Residential Insurance

In March 2016, TransUnion introduced Habitational Risk Score, an insurance solution suite uniquely tailored to commercial residential properties. As we reflect on Habitational Risk’s fifth anniversary in the market, we can readily identify four key ways in which this innovative tool has fundamentally altered the commercial residential insurance industry.

#1. Expanding markets
Historically, commercial residential insurers used regional data to guide their marketing efforts. Insurers competed aggressively for properties that met these criteria, often leading them to underprice those policies to win business — and as any insurance underwriter knows, an underpriced risk is a bad risk.

TransUnion’s Habitational Risk Score allows insurers to better understand individual properties and discover potential new business anywhere, even in what were historically considered difficult-to-price markets. Today, insurers can identify buildings with good scores in previously underserved neighborhoods that might've been otherwise ignored.

#2. Improved profitability
Habitational Risk Scores are highly predictive, leading to potentially more profits for insurers. Figure 1 demonstrates this, showing the combined loss ratio relativities by score segment of retrospective carrier analyses completed as of Feb. 2021.

FIGURE 2. TRANSUNION HABITATIONAL RISK SCORE CHANGES AFTER A YEAR

Policies scoring in the least risky quintile have loss ratios 28% better than average, while policies scoring in the riskiest quintile have loss ratios 64% worse than average, or 2.3 times greater than in the least risky segment.

#3. More effective underwriting
Habitational Risk Score can help insurers improve and expedite underwriting processes in a number of aspects, including:

• In most cases, Habitational Risk Score response times are less than one second
• Granular data. Users can access aggregated occupant data like age characteristics — crucial information that enhances underwriting processes for student housing or senior living
• Support for complex properties. Insurers can tell if one building on a property, or one parcel in a multi-location property bundle, represents a particularly high risk, allowing for more granular pricing

#4. Better portfolio management
Developing strategies to identify changes in occupant risk is a notoriously difficult problem, but the insights provided by Habitational Risk Score can help. Figure 2 illustrates how a sample set of Habitational Risk Scores for a portfolio of properties changes over time. Up to 91% of these properties did not have significant changes from year to year. However, 6% did have a significant deterioration, and 3% had significant improvement. Underwriters can now see within their portfolio and clearly identify changes in risk.

FIGURE 2. TRANSUNION HABITATIONAL RISK SCORE CHANGES AFTER A YEAR

Learn more about what's next
For more details on how Habitational Risk Score has changed the industry over the past five years — and to get a glimpse into what the next five will hold — check out the new report from TransUnion, "Habitational Risk Turns Five Years Old."