John Nixon, a former underwriter and an expert on property insurance, continues the discussion on how companies can better prepare for going through property insurance renewals. Part III focuses on how to improve the quality of data in your company’s submission to insurance underwriters.
In my experience, to achieve the best pricing and terms available in today’s market, three elements need to be addressed: competitive pressure, submission format, and data quality (including defensible values). Part I focused on competitive pressure, Part II focused on submission format, in Part III the focus is on data quality.
1. Even if you’ve created the right conditions for competitive pressure, and you have a great submission format, if your data quality is poor and/or the values aren’t current and credible, you will have a distorted view of your exposures and coverage needs, and there will be an adverse and material impact on underwriters’ capacity, pricing, and terms.
2. Common data quality issues include:
a. Incomplete/Inaccurate Addresses
- Not all underwriters will use coordinates provided, so it’s still important for you to confirm that your addresses geocode as close as possible to the true location (easy to do in Google Earth).
- International addresses provided are often rejected by computers. You can ask your mail room for the addresses they use for package delivery. Again, supplementing addresses with coordinates is recommended.
- Industry standard codes are needed for ISO Fire, and RMS and AIR vendor codes for CAT Modeling.
- If the computer doesn’t understand a code provided, it will substitute a code that almost always costs you more money.
- You can keep columns with your internal descriptions/codes, but these need to be translated into industry standard codes for underwriters to import.
- If you’re not confident that you understand the technical terms, get help. Guessing will undermine the underwriters’ confidence in the data and cost you money.
d. Careless errors: duplicate entries, missing/extra digits in values, text in value fields, formula errors and spelling errors. Check your work, then have someone else check your work.
e. Valid entries that don’t make sense (ex: a 10-story wood frame building). These may require engineers, advanced analytics, or CAT modeling to identify and correct.
3. Values – I’ve saved the proverbial elephant in the room for last.
a. Accurate values (current and credible) are the foundation of most property risk management decisions, for all parties, including you as the policyholder. If values need adjustment, do it now rather than planning on making a series of adjustments over time.
b. Underwriters checking values is not a recent trend. In a harder market, the underwriters just have more leverage to respond aggressively and overtly to under-reported values. In a soft market, they still recognize under-reported values, they just address the issue by declining to quote or using less visible rate and policy wording adjustments.
- Under-reporting values will likely not save you premium.
- For the long term, know that accurate values will help you negotiate best pricing and terms regardless of market conditions.
- I often find over-reporting is as much an issue as under-reporting values. This happens frequently with new capital projects being reported at the total project cost, which included values that wouldn’t be repeated when rebuilding: site acquisition, pre-construction studies, land improvements, demolition of old buildings, etc.
- You probably don’t need to make a large investment in on-site appraisals. Desktop estimates can often be used as a first step to help prioritize which locations (if any) and specific issues that require on-site visits to address.
- Underwriters are looking for premium increases, not necessarily compounding rate increases with value increases.
- The incumbent underwriters are likely aware of under-reporting issues and have been silently addressing them in the form of rate adjustments. Addressing valuation issues, with a perceived credible threat of competition, should motivate incumbent underwriters to take a fresh look at their rates.
While your marketing plan should adapt to changing market conditions, maintaining a submission that’s easy for underwriters to process and populated with high-quality data (including current and credible values) will always help you achieve the best pricing and terms for your property insurance renewal.
If you have questions or would like a complete copy of this article, please contact John.Nixon@Asperta.com.