using data to drive commercial property roi · 3/3/2016 · commercial property roi june 20th,...

Verisk Insurance Solutions | ISO AIR Worldwide Xactware

© Verisk Analytics, Inc. All rights reserved.

Using Data to drive

Commercial Property ROI

June 20th, 2016

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• Increasing profitability in a low investment yields and a soft

market environment

– Generating strong underwriting results to meet profitability targets

– Verifying and improving the quality of information

– Addressing premium leakage

– Avoiding adverse selection

Market dynamics and low yield environment are forcing Carriers to improve Underwriting efficiencies

• Creating insight from information and identifying new avenues

for growth

– Benchmarking key metrics to industry standards

– Identifying cross-sell opportunities

– Implementing predictive analytics to improve risk pricing, risk selection and

retention



A comprehensive review of the book can deliver critical economic benefits

• Inconsistent data persists in Commercial Underwriting Process in

terms of quality, reliability, & completeness. The impact is

significant.

• The sources of this data are:

Premium paying clients

Distributors

Insurance company resources

3rd party vendors

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© Verisk Analytics, Inc. All rights reserved. © Verisk Analytics, Inc. All rights reserved.

Empirical Findings



Building Characteristics are often key rating variables and have material impact on the premium charged

Building Characteristics (Site Verified)

• Construction Class = 3

• Public Protection Class = 3

• Occupant = Mercantile

• Building Replacement Cost = $2.9M

• Sprinklered Building with ASGR = 90

• Area = 25,280 square feet

Premium = ~$2,200

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Rating Attributes Range Approximate Premium Impact

Construction Class 6 $1,760 (-20%) Potential Premium Leakage

1 $2,930 (+33%) Customer Acquisition/Churn issue

Public Protection Class 1 $2,004 (-9%) Potential Premium Leakage

10 $3,929 (+79%) Customer Acquisition/Churn issue

Occupant Manufacturing $3,096 (+40%) Customer Acquisition/Churn issue

Building Replacement Cost $4M $2,640 (+20%) Customer Acquisition/Churn issue

No Sprinkler System $2,932 (+33%) Customer Acquisition/Churn issue

Building Area 50K square feet $3,850 (+75%) Customer Acquisition/Churn issue

BGI Case Study

Manchester, CT



Exposure Impact Example

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Bound Info on 1/1/2016

• Occupancy: Hospitality

• Construction: Joisted Masonry

• Public Protection Class: 4

• Values Insured: $10M (Building and Contents)

• Coinsurance: None

• Annual Gross Written Premium: $5,000

• PML: 15% - 1,500,000

• MFL: 60% - 6,000,000

• Net Retention – 100%

Claim on 3/3/2016

• Loss: $3 million after deductible

• Construction: Frame

• Public Protection Class: 8

Impact

• UW guidelines for a Frame risk call for a mandatory 50% cession to a quota share reinsurance facility.

• In this scenario, net retention would be $1.5 million versus $3.0 million



Building Characteristics are often key rating variables and have material impact on the premium charged

Building Characteristics (Site Verified)

• BGII Symbol = AA - Superior Wind Resistive

• Number of Stories = 31

• BCEGs = 3

• Year Built = 1970

• Distance to Coast = 1001 - 1500 feet

• Building Replacement Cost = $119.5M (With exclusions)

Premium = ~$410K

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Rating Attributes Range Approximate Premium Impact

BGII Symbol B $768K (+87%) Potential Premium Leakage

Number of Stories 10 $365K (-11%) Customer Acquisition/Churn issue

BCEGs 10 $451K(+10%) Potential Premium Leakage

Year Built 2003 $267K(-35%) Customer Acquisition/Churn issue

Distance to Coast 2 - 3 miles $326K(-20%) Customer Acquisition/Churn issue

BGII Case Study

Miami, FL



Prem Overage Prem Leakage

When compared to field verified data, nearly 40% of the records have incorrect construction class information

Verified Accurate Incorrect

53%

Verisk’s Assessment

of Carriers’ Records

Inaccurate Records’

Impact on Premium

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Construction Class Analysis

37%

63%

47%



Prem Leakage Prem Overage

When compared to Verisk field verified data 15% of the records have incorrect PPC information

85%

15%

Verified Accurate Incorrect

42%

58%

Verisk’s Assessment

of Carriers’ Records Inaccurate Records’

Impact on Premium

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Public Protection Analysis



Less than half of reported class codes matched available data

10

46%

54%

Assessment of Carrier vs. Listed Business Classification

Accurate Inaccurate

Example 1

Carrier Provided: “Motor Vehicle Dealer - Used only” Actual Business Classification: “Motor Vehicle Dealer - New and used”

Business Misclassification

54% Inaccurate

Example 2

Carrier Provided: “Restaurants with Commercial Cooking” Actual Business Classification: “Food Products Mercantile < 15,000 square feet”



The majority sample risks are written at Replacement Value Costs that are likely too low

The replacement cost amount represents the estimated cost to rebuild the structure (s) in the geographic market in accordance with current building codes following a total loss. Replacement cost amounts includes pricing for labor, materials and contractor's overhead and profit; it does not include costs for excavation or land value.

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Carrier has higher RC value

Carrier has lower RC value

Ratio of Calculated RC / Carrier RC

Insurance to Value

1%

4%

10% 12%

17%

31%

19%

6%

0%

5%

10%

15%

20%

25%

30%

35%

0-.25 .25-.50 .50-.75 .75-1.00 1.00-1.33 1.33-2.00 2.00-4.00 4.00+



Summary - Portfolio Assessment Analysis

Rating Information Analysis Identified

Construction Class • ~40% of the carriers’ risks had incorrect construction class

Protection • 15% of the carrier risk were listed in an incorrect PPC • Many of the sprinklered risks received sprinkler credit when not warranted

Square Footage • ~80% of the carriers’ risks had incorrect square footage. • Percentage decreased as allowance for error increased, but there are gross

mismatches

Class Code • ~50% of the carriers’ risks had incorrect class code information. • Some codes were not even valid Commercial Property codes.

Limits • ~75% of the carriers’ risks had underestimated limit for Insurance to Value

20% Underpriced risks

Adverse Selection

14% Overpriced Risks

Risk Retention Issues

$1.3B In annual premium leakage

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Summary of Results



ProMetrix®



Verisk’s Unique Market Position

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Database, reports, analytics, and order platform

– Database of over 6 million commercial buildings

• 3.9 million field verified (Over 400,000 annual surveys)

• 1.2 million scored & 1 million unscored tax assessor records;

• 26 million occupants and businesses

– Class & Specific loss costs for buildings and contents

– Component based Replacement Cost estimates for greater accuracy

– 5+ million reports delivered in 2015

– Used extensively by carriers writing admitted as well as excess businesses



Underwriting insights delivered thru ProMetrix

Property characteristics • Construction class

• Year built

• Sprinklered status

• Number of stories

• Square footage

• Combustibility rating

• Hazards of occupancy

Public protection • PPC class

• Fire protection area

• Drive distance to nearest responding fire station

• Responding fire station

• Water supply type

Other building occupants • Name

• SIC

• Classification

Sample Property risk characteristics

Likelihood of crime • Aggregate index

• Aggregate index – crimes against person

• Aggregate index – crimes against property

• Detailed crime scores

– Arson

– Auto theft

– Robbery

– Aggravated assault

– Burglary

– Homicide

– Rape

– Larceny

Neighborhood exposures (10 closest high risk exposures)

• Exposure name

• Type

• Distance

Sample Location risk characteristics



Underwriting insights delivered thru ProMetrix

Geographic Information

• Distance to Water / Flood Assist

• Terrain Analytics

Peril History – 5 Year

• Hail, Wind, Lightning & Wildfire

• Occurrences & Severity

Peril Analytics

• Hail Risk Score: 1- 10 Scale

• Wildfire Risk Score – 1 – 30 Scale

Sample Analytics for Natural

Cat Perils

• Detailed business description

• Address & GPS coordinates

• Location type (HQ / single / branch)

• Year started & Hours of operation

• Business Activity - SIC & NAICS

• State of incorporation

• Employees & Payroll

• Sales volume

• Premise floor area

• Own / lease indicator

• Hazardous chemicals on site

• Business creditworthiness

– Bankruptcy filings

– Tax liens

– Credit score

– Days beyond terms

– % debt reported current

– % debt 90+ days past due

Sample Occupant risk

characteristics



• Loss Cost – Projection of average

future claim costs based on loss

experience

• Replacement Cost – Estimation of

cost to rebuild a structure after a

total loss (includes labor and

materials only)

• Sprinkler Assessment Report –

Determination of sprinkler design,

effectiveness and maintenance

• Flood Risk – Determination of

whether the Property is in a special

flood hazard area

• Wind Risk – Determination of whether

the Property is in a area susceptible

to high wind damage

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• Wildfire Risk – Determination of

whether the Property is in a area

susceptible to wildfire

• Relative Hazard Percentile (RHP) –

Unbiased evaluation of a building’s

construction, occupancy, protection,

and exposure to fire and wind,

relative to similar buildings in the state

and nation

• Type I & Type II Loss – estimates a

building’s loss expectancy based on

building characteristics, occupancy

and the functioning of fire protection

systems.

• Risk Improvement Statement –

Specific recommendations

identifying hazardous conditions in a

property

ProMetrix® Sample Analytics



Deploying field verified data & analytics in Underwriting Workflows

• 500+ building attributes

• Content used to prefill all

the fields in ACORD 140

form

• Highly scalable & resilient

API:

• improved risk selection because of enhanced data quality

• increases ease of doing business with intermediaries

• Increased underwriters’ productivity

• reduced servicing and administration costs

Submission Validate Rate Portfolio

Mgmt. Renewal

ProMetrix



Building Underwriting Solution for US Commercial Property

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Global BUR - Providing the building blocks for effective underwriting

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Global BUR - Providing the building blocks for effective underwriting

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Questions?

Thank you [email protected]

using data to drive commercial property roi · 3/3/2016 · commercial property roi june 20th,...

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