Insuring your property is one of
the largest annual expenditures
American homeowners face and,
like most bills, it’s not pleasant,
particularly for those that live in
Florida where reinsurers have been
known to re-underwrite books of
business on a frequent basis.
“Not only do homeowners go
through a difficult process when
they apply for coverage, but also
when they renew their policy,” says
Bill Martin, president of Flori-
da-based Bankers Insurance Group.
“There needed to be a better solution to the problem, but to
some extent the data made available to us wasn’t ready for the
Insurers deal with events that take larger chunks of surplus
than what had been modeled in the past, explains Martin.
“For some carriers, that hit was not bearable on a year-to-year basis, but other insurers were more willing to take the hit.
What they ended up doing was creating a hard market,” he says.
As insurers became more aware of risk patterns they began
to reduce coverage on certain exposures, even to the point of
excluding areas such as dog bites, according to Martin. The
result was not just a tight market, but a challenge to be fully
covered for accidents that could happen.
Martin believed Bankers needed better data to tackle this
issue and turned to LexisNexis Risk Solutions.
“They are a data aggregator for every industry, not just
insurance. I made the assumption they would be the most likely
source for the broadest amount of data,” said Martin. “We need-
ed to underwrite risks differently at Bankers because we were
using the data to more or less pre-rate the state.”
Martin looked at several possibilities, but at the time, in
2011, he found it difficult to contract with a data provider that
could offer the amount of information Bankers needed. Bankers
decided on LexisNexis based on three levels.
“One is simple,” says Martin. “They have data across more
than just insurance so they can look to all the databases within
the enterprise to see what might be relevant to the underwrit-
ing model. Second, they built out a large and very analytical
insurance department that specializes in our industry and goes
so far as to specialize by product in some instances. Finally, if
you look at their history, they have been willing to work with
carriers on new services and processes. Some of the other data
companies might innovate, but they would require a subscrip-
tion you might never use.”
Even with experienced underwriters, insurers have difficulty
getting to a predictive process, points out Martin. The method
to offer the quote upfront rather than post-quote is easier to
program and maintain than the traditional post-binding under-
writing model because the carrier has already made its decision
on the customer and this shortens the process.
“You have to dismantle the old process and that’s hard to
do, even for small companies, because there are data calls to be
made in terms of the prefill, and a reduction of the number of
questions asked,” he says. “Technology wise, it was more work
than expected, but much easier to maintain.”
Underwriters know which processes work well, so it is
difficult emotionally for them to let go of these predictive
underwriting tools and replace them with a little more risk and
better customer experience to cover that risk, explains Martin.
Over the last year, though, Bankers’ underwriters have seen the
results and are excited.
The first thing Bankers did with the model after pre-rating
the state was decide which risks were underpriced. Because the
model was strong, Martin explains the carrier had to walk away
from just three percent of their policyholders. Another small
group agreed to a change in rates, so the insurer didn’t have to
non-renew many of its policyholders.
“We then opened the doors. The existing book that was
there prior to the model being introduced performed better
than we expected, so we were excited about the model for new
business. The loss ratios are coming in a good 60 percent below
the renewal ratios, something you don’t ordinarily see in personal lines,” says Martin.
The model has not been perfected, but Martin explains “it
is fire tested and done in an environment where some errors
could be corrected so we should be able to go to areas that are
not in Cat mode and get more customers there. The customer
experience is key because someone is always willing to cut your
rate. We need homeowners to come to us because we are easy
to deal with and give them more reason to do business with us.
It gives us an advantage on price, but the answer isn’t always
Competitive Factors Fuel Underwriters
Storms aren’t the only issue facing insurance carriers in the ultra-competitive
Florida insurance market.