You could say that commercial insurance is at an inflection point. Catastrophic losses in 2017 and 2018 driven by hurricanes on the East Coast and fires on the West Coast have been significant. The market has recapitalized quickly. But commercial line prices have been rising in response to these losses. In fact, commercial line prices rose nearly 3% in second quarter for 2018.1
Raising premiums in response to recent weather-related asset losses isn’t surprising. However, these extraordinary events are putting more pressure on long-term profitability. Continuing to raise prices just doesn’t seem sustainable.
With an eye to setting a stronger foundation for profitability, insurers should focus on underwriting operational excellence. Wringing cost from commercial residential underwriting using sound underwriting fundamentals of proper risk segmentation is the way forward.
Add occupant data to commercial habitational operations
You can’t control the weather. But you can build a more profitable and efficient day-to-day operation by incorporating occupant data in underwriting. The good news is that many insurers are now looking to a future powered by occupant information and advanced analytics.
Getting better with predictive analytics
A large percentage of insurers plan to use more occupant information and analytics to improve operations in the next two years in order to complete the following:2
- Triage to identify complex claims (80%)
- Better understand risk drivers (20%)
- Reduce processing time (49%)
- Identify high-risk cases (45%)
- Build better risk models (45%)
For commercial lines, this means using predictive analytics to improve loss ratio performance and process efficiency to support top-line profit and growth.
3 ways to use occupant information today in commercial residential insurance underwriting
Insurers using occupant information for commercial residential insurance underwriting have the potential to reap huge rewards. Occupancy data has shown to improve loss ratio lift by 200-300%.3 Here are three ways insurers are improving commercial underwriting with the use of occupancy data.
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 match price and risk that will produce better loss ratio performance.
- Renewals segmentation based on changes in risk
Mitigate risk during renewal by gaining a clearer understanding of occupancy trends or changes in overall risk level. Understanding these changes can help prioritize which commercial policies will require more time and effort to renew, thus improving overall profitability.
- 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.
Set a strong foundation for commercial underwriting
If the past few years are any indication, it appears commercial insurers will continue to face losses from extreme weather events. To mitigate some of those losses, insurers are focused on streamlining their underwriting operation to maximize profits. Improved analytics will be the future of commercial underwriting. A great place to lay a foundation for that future is with predictive analytics that leverage occupant information. The time to get started is now.
1 2018 Willis Towers Watson. Commercial Lines Insurance Pricing Survey 2018 Q2. Used with permission. https://www.willistowerswatson.com/en/insights/2018/09/commercial-lines-insurance-pricing-survey-2018-q2
2 2018 Willis Towers Watson. 2017/2018 P&C Insurance Advanced Analytics Survey Report (U.S.). Used with permission. https://www.willistowerswatson.com/en-US/insights/2018/05/advanced-analytics-and-the-future-insurers-boldly-explore-new-frontiers
3 TransUnion internal data – Commercial insurance research study.