As the property insurance industry moves toward increasing sophistication, full understanding of building and loss characteristics becomes a key to proper underwriting and policy pricing.
An insurance carrier’s claims division with its staff and independent adjuster partners is uniquely positioned to help gather high-quality, risk-specific information that is critical for accurately creating and deploying risk-based pricing segmentation models.
However, adjusters, when presented with arguments to increase data capture for the purpose of pricing segmentation, often reply with “Who cares? This doesn’t impact me.” But the reality is that insurance carriers are more dependent than ever on the skill set possessed by their adjusting teams and the information they can provide. In order to fully understand the importance of the adjuster’s role in this process, we must first understand the value of this information to the carrier.
“Show Me the Money” – The Carrier Perspective
For decades, property insurance carriers have struggled to make important financial decisions with poor quality data. While these insurance companies have amassed huge quantities of paid claim statistics, this data is of little use when trying to better understand characteristics of the risks they insure due to a lack of meaningful detail.
Historically, the value of claims feedback to underwriting has been limited to “risk reports” prepared by adjusters to alert the company to condition issues and other potential problems. This data continues to be of value, but is not enough to allow a carrier to compete and grow a profitable business in today’s market. Carriers have come to the conclusion that better leveraging the adjuster that is already on site, taking a few extra minutes to fully evaluate the entire structure and gather risk characteristics, can help guide future underwriting decisions. Carriers have also realized that they need adjusters to indicate the proximate cause of loss once it is evident.
Information collection using modern technology provides instant, actionable information to the underwriter. Based on detailed risk characteristics, the carrier can evaluate individual properties to ensure the proper amount of coverage (and premium). This process of obtaining a solid insurance-to-value (ITV) calculation also collects a wealth of data that can be used in predictive modeling when it is properly archived.
An ITV should consider any remodeling, additions or other improvements for determination of policy premium. The ITV should also verify accuracy of policy limits and adherence to coinsurance requirements. Observations recorded by the adjuster can also reveal risks associated with the property such as a vicious dog, a trampoline or a wood burning stove, etc. Furthermore, hazard characteristics such as terrorism exposure, distance to a fire hydrant, or proximity to a neighboring business with hazardous activities will be noted.
Other observations noted through the adjusting process during an on-site inspection are damage from previous events and pre-existing conditions. The overall quality of the structure can be recorded and archived to determine proper pricing or other business needs. What kind of roof is on the building? What is its damageability? What is the average cost of repairs should it sustain damage? Is age of the roofing material a factor? The answers to questions like these can be easily gathered and fed into the proper data stream.
Finally, collection and examination of loss data will help carriers study rating tiers and allow peril-specific exposure mapping. Policy forms can be improved to fit business needs. Even reduction of fraud is capable through meticulous examination of data.
What’s In This for Me? – The Adjuster’s Perspective
Insurance carriers have always relied on skilled independent adjusters (IAs) to assist in the negotiation and settlement of claims. However, control of loss adjusting expenses often overshadows the benefits of employing IAs. The pendulum keeps swinging back and forth over whether a carrier is best served by staff adjusters or an independent staff. Invariably, the arguments hinge on service vs. cost.
The IA’s place in the carrier’s business is more securely established when an independent adjuster is able to provide detailed, meaningful information that allows the carrier to properly price and place a risk in addition to settling a claim. In fact, savvy IAs will market this additional service to their carrier partner as a means of differentiating themselves from their competition. This is especially powerful when the IA utilizes data analytics to ensure that the carrier is receiving high-value and high-quality data. In essence, the IA can generate more business and bill more for their services by providing detailed data.
From the staff adjuster perspective, the collection of more granular and actionable information can change the dynamics within the entire organization. In some companies, the claims division is seen as a “necessary evil.” The age-old rivalry between underwriting and claims maintains that “those adjusters keep overpaying claims.”
On the other hand, adjusters often believe that the risks they inspect haven’t been properly underwritten. Imagine the relationship that can exist when the underwriters and staff adjusters collaborate fully in the evaluation of the insured risks. Suddenly the claim adjuster has the power to positively impact the carrier’s bottom-line financial results by gathering and providing data that enables the underwriting team to more effectively place and price their risks. This shift can transform the entire claims division from a cost center into a profit center! As a result, a carrier’s claim staff can create more job security for themselves as they drive profitability within the claims division. As with the I/As, data analytics provides an important oversight to help ensure data quality.
True data analytics provides the ability to study more than just claim totals and summaries of line items. It should capture all property claims data as well as information about the method in which the claim was settled. Analytics should provide trending information about adjuster behavior, price deviations, overhead and profit calculations, and other critical estimate components.
How Do I Make This Happen?
First, use the most effective way to gather granular data by standardizing the use of an estimating tool that electronically archives all data. Ideally, this estimator will use the same cost database as the underwriter in order to ensure valid comparisons.
Further, handling all claims on the same estimator with the same database (regardless of whether the claims are adjusted by a carrier’s employee or an independent adjuster) helps ensure the widest possible data aggregation from which to complete the analysis.
Next, leverage time in the field to gather additional data that can turn into strategic advantages. Create an ITV, note the breed of dog on the premises, check the distance to the hydrant, and identify the proximate cause of loss.
Once the data is collected and archived, a skillful analyst can identify the risk characteristics that are critical for the underwriting process. A good analyst will help make solid recommendations that drive the business in the right direction. Conversely, even the best data in the hands of an untrained or unskilled staffer is often just meaningless gibberish.
Where Do We Go From Here?
As this article goes to press, the property insurance industry is still trying to determine the full scope of damages caused by hurricanes Katrina and Rita. What is already being touted as the most expensive storm season in America history follows closely on the heels of major hurricane damages from the Florida onslaught in 2004.
As an industry, what can we learn from the huge volume of claims likely to arise out of these catastrophes? Many carriers are inspecting their entire books of business in Louisiana, Mississippi and Alabama to adjust and settle claims and in many cases, to understand the exposure to future damage. If the claim and underwriting data from the storm is collected and archived, it can later be mined to provide tremendous insight into risk-based pricing segmentation and demand surge indexes for areas prone to catastrophic events.
If you are not already involved with a process to collect data that creates greater value, urge your management group to put a strategy in place that will help our industry maintain profitability and push your company, whether an insurer or an independent adjusting firm, ahead of the competition.
Jonathan Kost is vice president of Claims for Marshall & Swift/Boeckh. As an employee of MS/B, Kost has held the positions of claims director, analytics manager, and claims manager.
Was this article valuable?
Here are more articles you may enjoy.