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Use of Analytics for Homeowners Ratemaking Is Increasing, According to New Verisk Insurance Solutions/Earnix Study
JERSEY CITY, N.J., and NEW YORK, October 22, 2014 — Verisk Insurance Solutions, a leading source of information about property/casualty insurance risk, and Earnix, a leading provider of integrated pricing and customer analytics solutions for banking and insurance, released today the results of a joint industry study: Homeowners Insurance Ratemaking Approaches Survey. Verisk Insurance Solutions is a Verisk Analytics (Nasdaq:VRSK) business.
This survey was conducted to help insurance executives uncover best practices in ratemaking approaches used by North American insurance companies in their homeowners business. Survey responses were collected online from 99 insurance professionals representing companies that sell homeowners coverage in the United States and Canada.
The study reveals indications that the use of analytics for homeowners ratemaking is increasing, with more than
half — 57 percent — of homeowners survey respondents now using predictive modeling for homeowners loss cost development. But only 13 percent of the respondents now use predictive models for retention and new business conversion in their rate setting process.
Here are additional key findings:
- Top challenges in the ratemaking process mentioned by respondents include time lag for implementing new rates, using new data sources, and managing rate dislocation.
- The top concern for homeowners insurers identified by respondents is roof losses.
- Eighty-two percent of the larger respondents (>$500M in Gross Written Premium) use a by-peril rating structure.
- Forty-three percent of respondents still offer renewal discounts.
- Inspection practices vary widely, with 27 percent of respondents indicating that 100 percent of all home submissions are inspected, while 28 percent inspected less than a quarter of new homes.
“It’s no secret that homeowners business has historically taken a back seat to the auto business for insurance carriers when it comes to profitability and pricing sophistication,” said Meryl Golden, general manager of North America Operations at Earnix. “With the realization that companies can no longer look to the auto market to hit their growth goals, insurers are now focused on improving their homeowners pricing sophistication and use of analytics.”
“We see indications that the use of analytics for homeowners ratemaking is increasing, but there’s still plenty of catching up to auto that needs to be done,” added Golden.
“We worked with Earnix to conduct the study to better understand the concerns of customers as they relate to the homeowners market and to help homeowners insurers uncover best practices and benchmark their ratemaking approaches against those of their peers,” said David Cummings, senior vice president, ISO Insurance Programs and Analytic Services. “The survey confirms the movement by some large companies towards using a by-peril rating structure for homeowners. At Verisk, we are committed to helping insurers of all sizes develop a peril-specific rating plan to rate policies more precisely, increase market share, reduce loss ratios, and lower combined ratios.”
Complete results of the Homeowners Insurance Ratemaking Approaches Survey can be found at http://earnix.com/homesurvey/.
Earnix Integrated Pricing and Customer Analytics software empowers financial services companies to predict customer risk and demand and their impact on business performance, enabling the alignment of product offerings with changing market dynamics. Earnix combines predictive modeling and optimization with real-time connectivity to core operational systems, bringing the power of analytic-driven decisions to every customer interaction. Banks and insurers rely on Earnix solutions to improve deposit, loan, and insurance policy offerings. For more information, visit www.earnix.com.
About Verisk Insurance Solutions
A Verisk Analytics (Nasdaq:VRSK) business, Verisk Insurance Solutions is a leading source of information about property/casualty insurance risk. Drawing upon vast experience in data management, security, and predictive modeling to serve its clients, Verisk Insurance Solutions includes the industry-leading brands of ISO, AIR Worldwide, and Xactware. In the United States and around the world, Verisk Insurance Solutions helps customers protect people, property, and financial assets. For more information, visit www.verisk.com/insurance.
Aviv Cohen, VP of Products & Marketing