cars - Verisk Analytics

Q.4
2014
Insights for property and auto insurers
Insuring the
Connected Home
INSIDE:
Have home inspections reached a tipping point?
Homeowners ratemaking survey results
Emerging Issues Roundtable:
Drones, 3D printing, and home sharing
Contents
3From Neil’s desk
4Insuring the connected home
7Have home inspections reached a tipping point?
10 Homeowners ratemaking survey results
4
11 Emerging Issues Roundtable:
Drones, 3D printing, and home sharing
13 Creating a higher-quality auto application
14 Q3 2014 catastrophe review
14 Changes in reconstruction costs by state
15RISK:check Virtual Inspector expands to include classic cars,
boats, and specialty vehicles
15AIR Inland Flood Model developed to assess and manage
7
flood risk
16ISO Risk Analyzer property-specific by-peril rating data
now available in 360Value
17Verisk participates in Create Better Drivers panel
at Insurance Telematics USA 2014
18 In the news
19 Verisk conferences
20 Verisk web seminars
10
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Follow us on Twitter
@VeriskUW
Follow us on Google+ at
www.verisk.com/uwplus
From Neil’s desk
What exactly is a connected home? How have home inspection
methods evolved, and what are the implications for homeowners and
insurers? What are some of the key emerging issues that the industry
is grappling with? We explore those topics and more in this issue
of Visualize.
Read “Insuring the Connected Home” to understand the new technologies that make
a home “smart” and how those innovations may affect homeowners insurance. Our
article “Have Home Inspections Reached a Tipping Point?” explores the technology
trends that will undoubtedly have a major influence on residential property inspections
— and hints at what the future holds. And we present some key findings in a survey we
conducted with Earnix sure to peak your interest.
In the Industry Reflections section, you’ll learn about some of the emerging issues we’re
staying on top of — drones, 3D printing, and home sharing — and how they could
affect the way we mitigate and insure risk.
We share a powerful technique with you in our Visualizations section that helps identify
high-quality auto insurance applicants early in the quote process — before binding
coverage. And we give you a summary of third-quarter catastrophe activity in the
United States — six events incurring $1.2 billion in insured losses.
Review our recap of a fascinating panel we participated in — Create Better Drivers — at
Insurance Telematics USA 2014. The panel explored whether usage-based insurance can
actually change a driver’s behavior and discussed the challenges of developing effective
feedback methods.
Be sure to download our Visualize app on your iPad. You can also view an interactive
PDF that’s compatible with all mobile devices. You’ll never be too far from valuable
commentary on auto and homeowners underwriting.
Enjoy the issue.
Neil Spector
President
Verisk Insurance Solutions – Underwriting
Go to www.verisk.com/visualize to download the
Verisk Visualize app or an interactive PDF that’s
compatible with all mobile devices.
Q.4
2014
Insights for property and auto insurers
A publication of
Verisk Insurance Solutions – Underwriting
Neil Spector, President
Editor
Barbara Sohn
Assistant Vice President,
Corporate Marketing
Graphic Design
Anne Benkovitz
Senior Art Director
Digital Design
Tony Monserrate
Web Designer
Keight Bergmann
App Designer
Editorial Board
John Cantwell
Vice President, Verisk Underwriting
Steve Lekas
Vice President, Verisk Underwriting
Michael Gannon
Manager, Verisk Underwriting
For additional information or to submit
a letter to our Letters to the Editor section,
send e-mail to [email protected].
To read Visualize online and sign
up for your electronic version, visit
www.verisk.com/visualize.
545 Washington Boulevard
Jersey City, NJ 07310-1686
1-855-859-8775
www.verisk.com/underwriting
© Insurance Services Office, Inc. 2014. ISO, the ISO logo, ISOnet, ISO Risk Analyzer,
Verisk Analytics, the Verisk Analytics logo, and 360Value are registered trademarks
and RISK:check Virtual Inspector, Verisk, Verisk Insurance Solutions, and the Verisk
Insurance Solutions logo are trademarks of Insurance Services Office, Inc. Property
Claim Services and PCS are registered trademarks of ISO Services, Inc. RISK:check
is a registered trademark of Quality Planning Corporation. AIR Worldwide, the AIR
Worldwide logo, CATRADER, and Touchstone are registered trademarks of AIR
Worldwide Corporation. Xactware is a registered trademark of Xactware Solutions,
Inc. All other product or corporate names are trademarks or registered trademarks
of their respective companies.
Visualize | Q4 2014
3
Insuring the
connected home
Part 1 of a multipart series
By Douglas K. Wing, Assistant Vice President, Analytic Products,
ISO Insurance Programs and Analytic Services
We’re not yet in the Jetson era, but the technology behind modern
smart homes, or connected homes, would astound our ancestors.
Whether adjusting thermostats with a smartphone, watching
video surveillance from a tablet, or receiving alerts on mobile
devices, the capabilities of connected homes grow every day.
How will those smart innovations affect homeowners insurance?
And how will they reduce losses for residential property insurers?
In this article, we’ll examine how the industry has integrated three
common home security and sensor technologies into systems that
protect against homeowner exposures to theft, fire, and water
damage. We’ll also look closely at how those enhancements have
provided ways to mitigate home damage more efficiently.
Home security systems
Today’s security systems and home automations aren’t simply the
product of technological developments of the past few years. The
foundation for smart homes was laid decades ago. To understand
better how connected homes will affect future insurance solutions,
you have to take a look at the past.
Following World War I, the United States experienced a significant
increase in crime. That led Americans to have a renewed interest in
security measures and find methods to protect themselves and their
homes. Insurance companies reacted by offering premium discounts
to alarm subscribers. Initial security involved door shakers —
watchmen who made the rounds nightly to subscribers’ doors to
make sure they were locked. Next came bells and batteries connected to electromagnetic contacts on windows and doors.
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Verisk Insurance Solutions | ISO AIR Worldwide Xactware
In 2014, home security has evolved from door shakers to automated web-based systems. To feel secure that their homes have
locked doors and activated alarms, users can log in remotely to
check the status of their homes. They can also add video surveillance cameras and program their security systems to send a live
video clip if motion is detected. While more than 90 percent of
burglaries go unsolved, the addition of video surveillance is helping
to bring those numbers down. Many police jurisdictions across
the country have credited home surveillance cameras with assist­ing
in identifying burglars and helping to solve more crimes.
Insurers soon recognized that homes under a watchful eye were at
decreased risk. Early adopters were able to offer lower premiums
than their competitors while still remaining profitable. Advanced
home security systems reduce theft rates and allow homeowners
to react quickly in the event of a burglary. Two million home
burglaries are reported each year in the United States. Homes
without a security system are 300 percent more likely to fall victim,
with about 30 percent of all burglars entering through an unlocked
window or door.1 Advanced technologies allow insurers to offer
homeowners insurance at lower, more competitive prices.
My home has a security system with video surveillance, and it
gives my family and me peace of mind. It also gives me an annual
discount on my homeowners premium. However, wouldn’t it be
better if the insurance company could verify that I’m actually
using my security system when my family’s away? Finding the
balance between discounts and privacy will always be challeng­ing, but I can envision an additional discount in the future for
policyholders willing to share access to and verification of loss
mitigation devices.
1. S
afeguard the World, www.safeguardtheworld.com/statistics
Fire alarms and smoke detectors
As security systems evolved, so did fire alarm technology. In the
early 1960s, a team of Canadian researchers published a study
regarding the life-saving potential of heat and smoke detectors.
The findings played a major role in the development of policies
and standards for smoke detectors in new and existing residences.
Smoke detectors are responsible for a 50 percent decrease in U.S.
fire deaths between 1975 and 1998.
The sensors in modern smoke detectors often rely on two technologies — photoelectricity and ionization — to detect both
smoldering and smoking fires. The smoke detectors are part of
a system that will alert occupants of a fire in another part of the
home. Today, smart technology can connect the smoke detectors to
the Internet and allows homeowners to check the status and battery
life of their fire alarms remotely through a web-enabled device.
One of the challenges for insurance companies is how to manage
older homes. Safety codes have improved over time, and newly
constructed homes are required to have multiple interconnected
smoke detectors. However, many older homes have insufficient
smoke detectors and don’t meet current construction codes.
Bringing those homes up to date with smart technology benefits
homeowner safety and lowers the assumed risk that an insurance
company takes on. Those insurers that properly promote the
technology and encourage policyholders to invest in their own
safety can expect less risky exposures.
While it’s not practical for insurers to go house to house to check
for functioning smoke detectors, there are incentives for all parties
to ensure the devices are working properly. The better an insurer
communicates the life-saving benefits, the safer the homeowner
can be and the less risk the insurance company has to cover.
New smart technologies can be a major benefit to homeowners.
Imagine getting an e-mail or text alert letting you know the
battery life in a detector is low. Not only could you change the
battery before it starts chirping at 3:00 a.m., you could also rest
easier knowing your family will get an alert in the event of a fire.
Water leak detection and shutoff
Water losses have continued to increase dramatically in the past
ten years, and water detection technology is quickly becoming
a way to minimize that risk. Advanced sensing and monitoring
technologies deliver reliable and easy-to-use leak prevention and
automatic water shutoff.
Water detection devices can be installed around dishwashers, washing
machines, under sinks, or anywhere water leakage may occur. When
the devices sense water, they can send mobile alerts through e-mail or
text to give you much faster response time. Additionally, if you have
an automatic or smartphone-enabled shutoff valve, you can quickly
stop the flow of water in designated areas or at the water main. That
will prevent hundreds of gallons of water from spilling onto your
floors and causing severe water damage.
Visualize | Q4 2014
5
An additional benefit is that these systems often allow users to
monitor their water use over time. By better understanding water
use and possibly detecting leaks early, individuals may become
more efficient in their water usage.
New smart technologies can be
a major benefit to homeowners.
In the insurance world, we’ve all seen claims from broken pipes,
failed hoses, and leaky faucets that result in extensive damage
when the homeowner is away. Not only are floors ruined, but
malfunctioning second-story bathrooms or washing machines often
lead to first-floor ceiling damage and a variety of other repairs.
Last summer, while my neighbors were away at work for the day, a
broken hose caused flooding in their home. The insurance company
paid out $20,000 for repairs and restoration, but they still owed a
$5,000 deductible. Imagine the benefits to the homeowner and
the insurance company if the homeowner could have detected
water damage sooner and automatically shut off the system.
My neighbors would have saved the cost of their deductible and
avoided the inconvenience of home repairs. The insurance
company could have avoided the cost of the claim as well.
Embracing the future
The benefits that technology companies and vendors promote in
smart homes make homeowners feel safer and more connected
to their homes. Lowering homeowner premiums is a welcome
additional perk. Insurers get peace of mind and a lower risk exposure
knowing that homes receive efficient and reliable monitoring.
While this article is not a comprehensive list of home technologies,
it provides a glimpse into some of the industry’s advances. Other
devices on the market, such as remote door/window locks, timed
lighting, and mobile pool sensors, provide practical ways to update
homes and lower insurance premiums.
The largest hurdle is persuading customers to install such devices in
their homes and potentially share the information with insurers.
The more homeowners understand their premium cost benefit and
the advantages of cutting-edge technology, the more likely they
are to adopt. While it’s convenient to open your garage door with
your phone or set lights on timers while away on vacation, knowing
that you could save thousands of dollars in premiums or deductibles
is a stronger incentive for homeowners to embrace the future.
I believe insurance will continue to promote new technologies —
and those technologies can lead to new discounts and new ways of
assessing risk. Imagine if my neighbor could have avoided water
damage by installing moisture detectors or purchasing new hoses
and notified the insurer to receive an additional discount. The
more data created and collected, the better insurance companies
can evaluate risk and offer the best price to insure homes such as
yours and mine.
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Verisk Insurance Solutions | ISO AIR Worldwide Xactware
Douglas Wing, assistant vice president of Analytic
Products for ISO Insurance Programs and
Analytic Services, is responsible for the ISO Risk
Analyzer® suite of predictive analytic tools. He
leads ISO’s initiatives to enhance its offerings
through analytics and predictive modeling across
all lines of insurance. Before joining Verisk, Doug was in actuarial
research and development at Liberty Mutual.
Have home inspections
reached a tipping point?
By James Roche, Director,
Property Product Management, Verisk
Insurance Solutions – Underwriting
Property inspections are a staple of the
current underwriting process. During the
past few decades, incremental improvements have enhanced inspections, making
the process more efficient and the data
more useful. However, recent changes could
significantly affect how insurers conduct
property inspections in the near future.
Two fundamental factors are driving those
changes: advances in technology and data.
•Advances in technologies such as tablet
computers, high-resolution aerial
cameras, image processing software, and
commercial drones are creating new ways
to conduct property inspections.
•Data, traditionally a result of the inspection process, will soon drive that process
— adding new efficiency.
Verisk has identified three trends, driven
by those factors, that may significantly
influence how insurers conduct homeowners
property insurance inspections. Each trend
will help insurers get better inspection results
while reducing their inspection costs.
Geospatial data
derived from aerial
images has many
potential uses in
property inspections.
Geospatial data from aerial imagery
The insurance industry has used aerial
imagery for many years, particularly for
claims. But the technology has yet to
make significant inroads in homeowners
underwriting and property inspections.
That will change.
The continued development and enhancement of high-resolution aerial cameras
and the softening of FAA regulations on
commercial drones will make images with
sufficient resolution needed for underwriting
(such as the ability to assess roof condition) readily available. More important,
technology to capture and process the
geospatial data derived from the images is
reaching a point where data packets can
inform underwriting-related decisions in
an automated fashion. As the transition
takes place, insurers can begin to use the
geospatial data derived from aerial imagery
in place of or as a complement to bootson-the-ground property inspections.
Visualize | Q4 2014
7
Mobile
There are two ways mobile technology is beginning to have a
profound effect on property inspections, both of which will be
game changers.
Empowering the inspector
The days of inspecting a property with paper, pens, and point-andshoot cameras are coming to an end. The efficiency gains of inputting
information directly into a tablet computer rather than transposing
from paper to computer are too great to ignore. Everything from the
data collection process to the completion of reports will be faster
using mobile technology. You can take photos and seamlessly add
them to the inspection report.
Beyond the efficiency gains, mobile technology will result in
smarter inspections. Rather than a one-size-fits-all inspection,
mobile technology may enable insurers to change inspection
parameters from one property to the next. Using information
already known about the property, automated rules can change
the “inspection script” to capture the information necessary based
on specific attributes of the property and policy type.
Empowering the homeowner
Verisk sees tremendous opportunity using geospatial data for
property inspections. Here are several examples of how the
industry can use the technology.
•Roof inspections — In the future, aerial imagery may
eliminate the need for inspectors to climb to the top
of a roof. Geospatial data will assess roof condition and
provide information such as roof size, pitch, material,
shape, and more.
•Cross-selling — Geospatial data will tell you about the entire
property, not just the structure. For example, you’ll be able to
identify whether there’s a boat or RV parked in the driveway.
If so, you can solicit more business from your customer.
•Identifying additional and/or adjacent exposures — Are there
pools, trampolines, detached structures, or commercial
businesses located on the property? In many cases, geospatial
data will have the answers.
•Property changes over time — From a renewal perspective,
it will be possible to compare a structure from one year to the
next. You’ll know if there’s an addition or a new deck that can
affect the property premium at renewal.
•Insurance to value — You can validate the property characteristics data driving the replacement cost estimate.
Geospatial data derived from aerial images has many potential
uses in property inspections. In the future, data elements may
be more consistent, more accurate, and simply more numerous
from aerial imagery than from traditional inspection methods.
Assessing the trade-offs between methods will be an important
underwriting challenge.
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Verisk Insurance Solutions | ISO AIR Worldwide Xactware
Mobile technology makes it easier than ever to get information
and images of a home. A simple-to-use mobile app can provide
an opportunity for the consumer to complete a self-inspection
in less than 15 minutes.
You can easily capture data and photos of the exterior of a home
to identify condition hazards and property characteristics needed
for estimating replacement cost. But you can also capture key
interior characteristics, including the furnace, water heater, and
electrical panel, while simultaneously gathering the data you need
to assess accurately the quality of kitchens and bathrooms — all
at a fraction of the cost of an interior inspection.
A homeowner self-inspection is also an ideal way to gather
information on contents to ensure the homeowner has adequate
coverage for possessions and the insurer is charging appropriate
premiums. Technology will make it possible to identify and
estimate the value of the contents from the images.
Optimizing inspection spend
Inspections are expensive, time-intensive, and in most cases, result
in no underwriting action. However, the risk of compromising
underwriting quality by forgoing an inspection is real. The growing
availability of data and computer processing power is helping
insurers make better decisions about which properties to inspect.
The volume and breadth of data available to determine the need
for inspections are increasing. The largest hurdle at this point is
correlating specific property characteristics with inspection outcomes
Prefill data: Does it hurt or help the process?
Today’s insurers widely use property prefill data to support the sales process by
streamlining new-business quote and application functions. They may also use
prefill data to calculate replacement cost estimates needed for rating purposes.
However, as more and more insurers use property prefill, they’re detecting some
of its deficiencies through the property inspection process. Much of the property
prefill data delivered to insurers today wasn’t created for insurers, but rather for
tax assessing purposes. If the data provider doesn’t prepare the data for insurance
use through quality analysis and scrubbing procedures, property inspections
may reveal examples in which data prefill is causing more harm than good.
Estimated replacement cost typically has an effect on the amount of coverage that an insurer requires its customers to carry.
Obtaining accurate property characteristics at the point of sale is critical to avoiding insurance to value (ITV) and other underwriting actions. If a property inspection reveals inaccurate prefill data, the policy may warrant reengineering or potential cancellation.
That can lead to the loss of customers, make agents unhappy, and have a negative effect on growth and profitability targets.
During the past decade, property prefill has been one of the most important advances in insurance underwriting. However,
insurers must be sure the data is of high quality and has been prepared for insurance purposes before using it in the sales and
underwriting processes. Some property prefill vendors can boast very high hit rates on key building characteristics, but insurers
need to know that using lower-quality data can be more detrimental than advantageous.
that lead to an underwriting action. Adding to that challenge is the
fact that each insurer is unique and will have different inspection
parameters based on its risk management strategy.
The good news is any insurer that wants to spend its inspection
dollars more wisely can work with data modeling experts to
develop a strategy that will not only advise them if an inspection
is necessary but also tell them what type of inspection — drive-by,
interior, exterior, roof — is most appropriate.
Insurers that can effectively reduce the dollars they spend on
inspecting new business can reallocate those resources to their
existing book. That’s a key step to ensuring that each property
in the portfolio is adequately insured and contributing to a
profitable portfolio.
Technology has already revolutionized how we shop, watch TV,
invest, buy insurance, and more. And now the time is right for
technology to change how we view the property inspection
industry.
James Roche, director, Property Product
Management, Verisk Insurance Solutions –
Underwriting, is responsible for product man­
agement strategies for personal property lines, as
well as the development and launch of innovative
new property products. Before joining Verisk,
James was a senior manager at Allstate Insurance Company.
An exciting future
We’ve been fortunate to see the introduction of some of the most
exciting and revolutionary technologies during the past 20 years.
The widespread use of the Internet, mobile technology, and
microprocessing is on par with advances such as the light bulb,
automobile, and airplane. All have changed the way people live
their lives.
Visualize | Q4 2014
9
Homeowners ratemaking
survey results
40%
30%
26%
4%
By David Cummings, Senior Vice President and Actuary,
Personal Lines, ISO Insurance Programs and Analytic Services
Four years ago, ISO introduced its first by-peril ratemaking
products to the U.S. homeowners insurance market. The goal
was to provide insurers with an improved method for developing
rating structures that more closely reflect actual risk.
Today, 82 percent of larger insurers that participated in a recent
survey we conducted with Earnix are using by-peril rating structures for homeowners. (Larger insurers are those with more than
$500 million in gross written premium.) Of all insurers still using
all perils combined in their rating, 26 percent plan to move to
by-peril rating within the next year and 40 percent plan to do
so within the next two to three years.
Left: Use predictive modeling for homeowners loss cost
Yes, within the
Yes, within
Yes, more than
plans to use
development.
Right:
Use internal
or external No
resources
next year
2–3 years
3 years from now by-peril rating
for predictive modeling projects.
No
43%
Yes
57%
Both internal
and external
49%
Internal
40%
External
11%
For years, insurers have relied on personal auto lines to meet
their annual goals. But as that market continues to become more
competitive, they’re looking to homeowners as an area for growth.
Plan to incorporate by-peril rating into the rating structure
40%
30%
26%
Over the past four years, we’ve been enhancing our predictive
analytics tool, ISO Risk Analyzer® Homeowners, which examines
hundreds of indicators that can affect homeowners risks and
predicts expected losses by peril at the policy level.
Download the Homeowners Insurance Ratemaking
Approaches Survey.
4%
Yes, within the
next year
Yes, within
2–3 years
Yes, more than
3 years from now
Learn more about our rating and predictive modeling tools.
No plans to use
by-peril rating
I’d like to say the growth is a result of ISO’s efforts. But the reality is
that it’s more organic: Insurers see by-peril rating as a way to rate
and price policies more precisely and increase their market share.
Those same goals are motivating insurers to use predictive analytics.
No
Yes
The survey
found that 57 percent of respondents57%
use predictive
43%
modeling for homeowners loss cost development.
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Verisk Insurance Solutions | ISO AIR Worldwide Xactware
Learn more about our alternate Homeowners
By-Peril Rating Supplement offered at no charge
to participating customers.
David Cummings, senior vice president and actuary
for personal lines, ISO Insurance Programs and
Analytic Services, is responsible for ISO’s personal
lines insurance programs. He leads ISO’s initiatives
to enhance its offerings through analytics and
predictive modeling across all lines of insurance.
Emerging Issues Roundtable:
Drones, 3D printing, and home sharing
A conversation with Jeff De Turris, William Schlager, and Dan Bachman
The growth of drones, 3D printing, and home sharing is giving
people around the world the opportunity to experience what in
the past they could only imagine. Thanks to those three innovations,
a person can be a pilot without boarding an airplane, manufacture
products without running a factory, and rent rooms without
opening a hotel.
But with those opportunities come new exposures that could affect
coverage in both homeowners and personal auto lines. In this
Visualize roundtable, Jeff De Turris, William Schlager, and Dan
Bachman discuss these new advancements in technology and how
they could affect the way we understand, mitigate, and insure risk.
What are the greatest benefits of 3D printing, drones, and
home sharing?
Jeff De Turris: With 3D printing, improved technology available
at a lower cost has the potential to bring science fiction closer to
reality for us all. If you own a 3D printer, you could eventually
create many of the products or parts you need at home instead of
purchasing them at a store. You could reduce shopping trips and
save on gas while producing only what you need when you need it.
3D printers have built mugs, light fixtures, and even cars. The
possibilities are endless.
William Schlager: For home sharing, the greatest benefits are
convenience and cost. Home sharing websites typically allow
homeowners to rent part of or their entire home to short-term
visitors, often for extra income. For the short-term visitor, the benefit
frequently lies in paying a reduced cost over a traditional hotel.
Dan Bachman: If there’s any innovation that could change the
way we live, it’s drones. People interested in model airplanes and
photography could buy drones and get a bird’s-eye view of the
world. Those who are worried about home security could use
drones for surveillance. Even if you’re just sitting on your couch,
you could use a drone at some point to inspect your roof for
damage. When it comes to the potential benefits of drones, the
sky’s truly the limit.
What risks could the new technologies bring for homeowners
and personal auto insurance?
Schlager: Home sharing may involve multiple perils. First, as with
any form of hospitality, there’s the risk of property damage. Who
will pay if the home you rented (illegally in some cases) is trashed
or if a homeowner’s property is stolen or damaged? Secondly, who
will be legally responsible if a liability loss, such as bodily injury to
another person, occurs while owners rent the home?
De Turris: 3D printing also comes with its share of risks. Let’s say
you buy a 3D printer for your home. Who’s liable if a 3D object
you printed breaks and injures someone? You, the manufacturer
of the printer, or the company that supplied the 3D printing
materials? You don’t need to use the printer personally to be
liable for how it’s used. If children are able to produce dangerous
3D objects at home, parents could see their potential liability
exposure grow.
Visualize | Q4 2014
11
The risks of 3D printing could also affect personal auto. There are
already reports of hobbyists building entire cars with 3D-printed
equipment. If more drivers start printing auto parts at home and
installing them in cars, they could face safety exposures on both
the property and liability fronts.
Bachman: Anything that flies thousands of feet in the air is, by
nature, full of risk. But drones pose their own special level of risk,
as they’re easy to buy and can be operated by anyone. If you
accidentally fly your drone into your home or car, you could face
major property damage. If your drone flies into your neighbor’s
backyard, there could be privacy issues. If others are injured or
have property damage, you could face significant liability
exposures.
Bachman: We’ve been tackling the drone risks head-on. We recently
How is ISO working to address these new and emerging risks?
Schlager: The ISO Homeowners Policy Program currently contains
policy coverage provisions that may address some aspects of the
occasional rental of a dwelling. We’re now reviewing those
provisions to determine whether changes are warranted to reflect
the emerging trend of home sharing. We’re also monitoring the
topic as part of our Emerging Issues Portal available to ISO
participating customers.
De Turris: 3D printing has been a hot topic for our Emerging Issues
Panel, which has more than 100 members from across the insurance
industry. It’s also been the subject of a white paper entitled The
Promise and Perils of 3D Printing.
Download a complimentary copy
Finally, we’ve compiled a significant amount of research on
3D printing in our Emerging Issues Portal on ISOnet®. It’s a
great site, and I urge you to check it out.
produced a white paper that looks at a number of those issues.
It’s called Exploring Drones: How Unmanned Aircraft Could Change
the Way We Live, Work, and Think about Risk.
Download a complimentary copy
We recently discussed drones with our Personal Property Panel
and are considering coverage tools to address the exposures.
Jeff De Turris, assistant vice president in the
Personal Lines Division for ISO Insurance
Programs and Analytic Services, is in charge
of all aspects of producing and developing the
company’s personal lines rules, forms, and
pricing products. He’s also ISO’s point person
on emerging issues. He facilitates the company’s customer advisory
panel on emerging issues and coordinates ISO’s study of and
responses to topics identified as important concerns for the future.
William (Chuck) Schlager, manager in the
Personal Lines Division for ISO Insurance
Programs and Analytic Services, is responsible
for managing the research, development, and
implementation of the company’s rules, forms,
and pricing products for the personal property
lines of business, including homeowners, dwelling property, and
watercraft. Before assuming his current role, Chuck held various
personal lines positions at ISO, where he actively worked on
developing many new products, including the ISO Watercraft
Program and the ISO Personal Umbrella Program.
Dan Bachman, senior assistant manager in
the Personal Lines Division for ISO Insurance
Programs and Analytic Services, is primarily
responsible for developing the company’s rules
and pricing products for the personal property
lines. He’s also responsible for supervising the
introduction of many of our multistate form, rule, and loss cost
filings, including the ISO Homeowners 2011 Program.
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Verisk Insurance Solutions | ISO AIR Worldwide Xactware
Creating a higher-quality auto application
Insurers are always looking for ways to identify high-quality
applicants as early as possible in the quote phase — before
binding coverage. Such identification leads to a better customer
experience and faster binding.
Verisk Insurance Solutions has developed a powerful multistep
technique to achieve those goals.
Here’s how it works:
1.The consumer provides basic identifying information.
2.Verisk then queries multiple high-quality, independent data
sources simultaneously to obtain the information required
to complete the application.
3.Finally, we cross-corroborate the application information
to verify its accuracy.
Prior research has shown low-risk policies perform 60 percent
better than very-high-risk policies as measured by first-term loss
ratio. There are several reasons for that finding.
First, the use of third-party information makes the application
process simpler for the consumer. There’s no longer a need to
have the driver’s licenses and VINs for all drivers and vehicles at
hand when the consumer wants to shop for insurance. Not having
that information ready can often cause a consumer to abandon a
Low-Risk Applications
quote or use “dummy data” to populate an application. Using
third-party information results in a more complete and accurate
application in less time — and with fewer consumer keystrokes.
Secondly, acquiring application data from independent information
sources curtails potential fraud at the earliest point in the process.
Insurers either provide applicants’ information back to them to
80
verify or verify it behind the scenes as the consumer enters the
data. Applicants
are less likely to leave off vital information (for
60
68%
example, I “forgot” to include my 16-year-old on the application)
54%
40 the insurer is already aware of it.
if they realize
% of applications
The result is a measurably higher-quality application. Our research
shows that applications completed using the approach outlined
above have a 25 percent higher instance of low-risk applications
and half the rate of very-high-risk applications as measured by
RISK:check® Point of Sale.
Data
6
68%
54%
40
20
0
% of applications
% of applications
Composite
Very-High-Risk Applications
80
60
20
Finally, and this is key, the information sources are used to
cross-verify0 each other, ensuring that no single source serves
as the sole basis of application
and rating data.
Research underwriting
Standard
4
5.0%
2
2.5%
0
Research
Data
Standard
Composite
Research
Data
Standard
Composite
of applications
6
4
5.0%
Visualize | Q4 2014
2
2.5%
13
Q3 2014 catastrophe review
The third quarter’s six catastrophes
incurred $1.2 billion in insured losses.
thunderstorm. The events caused $1.2 billion
in insured losses, making this the quietest
third quarter in the past decade. The busiest
was in 2005, with more than $48 billion in
insured losses. Hurricane Katrina, which
caused the 2005 spike, is largely responsible
for pushing the ten-year average up to
Verisk’s Property Claim Services® (PCS®)
designated six catastrophe events in the third
quarter — all but one of them wind and
Q3 2014 U.S. Catastrophe Activity
20,000
4
10,000
2
0
0
Q
3
20
14
Q
3
20
13
20
12
Q
3
Q
3
Q
3
Q
3
Q
3
Q
3
Q
3
20
05
Q
3
Losses
Number of events
6
20
11
30,000
20
10
8
20
09
40,000
20
08
10
20
07
50,000
20
06
12
$ millions
$60,000
Number of events
Source: Property Claim Services (PCS), a Verisk Analytics business
$8.5 billion. Viewing just the past nine years,
the average third-quarter loss is only
approximately $4 billion. In 2008, Hurricane
Ike was responsible for pushing the quarter’s
losses to a higher level than usual. U.S.
catastrophe losses were $2 billion or lower
for six of the past ten third quarters.
Frequency was below average for the third
quarter. The ten-year average was 7.7 PCSdesignated catastrophe events, putting this
year 22 percent below average. The most
active third quarter of the past ten years was
2008, in which 11 events occurred. The
quietest third quarters of the past decade
came in 2007, 2012, and 2014, all of which
had six PCS-designated catastrophe events.
The largest catastrophe event of the third
quarter — a mid-August wind and thunderstorm event that struck Maryland, Michigan,
and New York — caused slightly more than
$500 million in insured losses and accounted
for approximately 40 percent of the quarter’s
insured losses. No other events exceeded the
resurvey threshold of $250 million.
Changes in reconstruction costs by state
(October 2013 to October 2014)
Replacement cost estimates continue
to rise in the fourth quarter of 2014.
Year-over-year reconstruction costs grew
approximately 3.3 percent since October
2013. All states, with the exception of
Alaska, had reconstruction cost increases
of more than 3 percent, with 24 states
seeing increases of more than 4 percent.
Increased costs for labor were a contributing
factor in the annual increase. Overall retail
labor rates increased 2.1 percent, and overall
materials costs increased 1.6 percent.
To learn more, view the 360Value® Overview
of Property Reconstruction Cost Changes
for fourth-quarter 2014.
14
NH
WA
MT
VT
ND
OR
MN
ID
NY
WI
SD
PA
IA
NE
NV
UT
CO
CA
AZ
IL
KS
OK
NM
MO
VA
KY
NJ
MD
DC
NC
TN
AR
SC
AL
CT
DE
WV
MS
TX
OH
IN
MA
RI
MI
WY
GA
LA
FL
HI
Verisk Insurance Solutions | ISO AIR Worldwide Xactware
ME
AK
Legend
0.00 – 2.99%
3.00 – 3.99%
5.00 – 5.99%
6.00 – 7.08%
4.00 – 4.99%
RISK:check Virtual Inspector expands to include classic cars, boats, and specialty vehicles
TM
Verisk released the RISK:check Virtual Inspector™ mobile
application for automobiles at the beginning of 2014 to allow
insurers to capture real-time images and information during the
quote or application process. Now, we’ve expanded the app to
include classic cars, boats, and specialty vehicles — further
streamlining your underwriting processes. Our studies1 show that
in 17 percent of personal auto applications, insurers can’t verify
the garaging location. Capturing that information could reduce
fraud and premium leakage by up to $1.75 billion.
Consumers can use their smartphones to provide underwriters
and agents with real-time data that verifies location, condition,
mileage, VIN/HIN or serial numbers, and many other details. They
can take photos of the interior and exterior of the vehicle and of
important documents such as registration, title, and bill of sale.
The advanced technology and open architecture of our platform
let us customize the app and the reports it generates to support
your unique business, markets, and workflow.
Learn more
1. Q
uality Planning Corporation analysis, 2012
AIR Inland Flood Model developed to assess
and manage flood risk
In October 2014, AIR Worldwide released a detailed, physically
based probabilistic inland flood model for the United States. The
new model provides underwriters and other stakeholders with a
comprehensive tool for assessing and managing inland flood risk
at a high resolution for locations on and off the many and varied
floodplains across the United States.
The applications of flood modeling technology are far-reaching and
span the entire insurance value chain. Benefits for insurers may
include a more robust view of individual risk pricing sensitivity and
new opportunities for flood insurance product innovation. Risk
managers can also better identify the assets driving their overall risk
and help develop and design cost-effective risk transfer strategies to
manage that risk.
The AIR Inland Flood Model for the United States defines flood
events based on an understanding of the physical causes of flooding
and how floods propagate through the country’s extensive river
networks. The model determines damage by calculating the inundation depth at each affected location, taking into account the country’s
comprehensive system of levees and their probability of failure, as
well as regional differences in building codes and building practices.
This AIR floodplain hazard map (Montgomery, Alabama) represents the
flood extent for a 100-year return period — a critical step for assessing
inundation depth at a given location and for determining loss.
In addition to accounting for flooding that will occur next to the river,
AIR also incorporates flood hazards that can happen away from the
river, known as off-floodplain flooding. That can result because of
particularly intense rainfall and poor drainage, among other factors.
The AIR Inland Flood Model for the United States is currently
available for the Touchstone® (Version 2.0) and CATRADER®
(Version 16) catastrophe risk management systems.
Learn more
Visualize | Q4 2014
15
ISO Risk Analyzer property-specific by-peril rating data now available in 360Value
®
Now you can get property-specific by-peril rating data from
the ISO Risk Analyzer® Homeowners predictive model in our
360Value® replacement cost estimator. ISO Risk Analyzer in
360Value makes it easy for any company that estimates replacement
costs as part of its underwriting process to implement by-peril
rating by building characteristic with no change to your workflow.
For every insurance quote, you’re already capturing propertyspecific information that you enter into the 360Value system to
calculate the replacement cost estimate. ISO Risk Analyzer then
uses that estimate along with the information you’ve entered
and many other variables with predictive value to project highly
refined loss relativities by peril. You can use the output to develop
®
premiums more appropriate for a particular home. For example,
as the comparison below illustrates, you can differentiate rates for
two houses on the same block with the same replacement value
based on how the risk changes by building characteristic in
relation to nine major homeowners peril categories.
360Value has fields for 17 of the 20 building characteristics that
ISO Risk Analyzer examines. Twelve of those are also available in
360Value Property Prefill, so in many cases, you can get a replacement cost estimate and highly refined rating information by
simply entering an address.
Learn more
Rating factors for neighboring houses differ by peril and building characteristic
Multiple stories have higher water nonweather losses
Larger floor plan has higher weather exposures
3.5 baths and 2 stories lead to higher water claims
Fewer bathrooms decrease water nonweather
Attached garage lowers fire and wind exposure
Pool increases wind and liability exposure
Fireplace increases hail exposure
Masonry construction decreases lightning exposure
Brick construction lowers weather claims
New roof decreases wind exposure
All-peril factor:
1.165
16
• Hail: 1.258
• Water nonweather: 1.309
• Liability: 0.859
• Fire: 0.908
Verisk Insurance Solutions | ISO AIR Worldwide Xactware
All-peril factor:
0.950
• Lightning: 0.871
• Water nonweather: 0.905
• Liability: 1.162
• Wind: 0.846
Verisk participates in Create Better Drivers panel
at Insurance Telematics USA 2014
Our own Avner Freiberger, general manager, Innovation
Center, Verisk Telematics, was one of several industry experts
to participate in a panel — Create Better Drivers — at
Insurance Telematics USA, a conference for insurers and
the telematics industry.
Other panel participants included Philip Henville, senior vice
president of solutions for Quindell; Kevin Henderson, chief
executive officer, Indenseo; and Jon Verhaeghe, insurance
telematics manager, Teletrac.
The panel explored whether usage-based insurance (UBI) can
actually change a driver’s behavior and the challenges around
developing the most effective feedback methods. The issues
explored included:
•analyzing the required coaching for different consumer
segments, such as personal auto and commercial fleets
•communicating regular feedback on “bad driving” practices
in a nonjudgmental, constructive format to provide a
positive customer experience
•evaluating the available interfaces for driver feedback, such
as a web portal or real-time audio, to align feedback methods
with customer preferences
Here are some key takeaways from the panel:
•Effectively coaching driver behavior depends upon accurate
data, detailed analysis, and specific feedback. Coaching
based on assessments of actual behavior gives drivers an
understanding of that behavior and data they can use to
improve. Accurate analysis will also give them confidence
in the process.
•When analyzing driving behavior, you need to look at
patterns, not single incidents. What at first review seems
like bad driving could actually qualify as good behavior based
on the circumstances.
•Data without context won’t help drivers understand what
they did wrong. For example, UBI programs can report
on an incident from 30 seconds before to 30 seconds after,
giving a complete picture of what happened and generating
feedback drivers can use.
•For commercial auto, fleet (or safety) managers are the key to
success, and their engagement is critical. When fleet managers
committed to the program and followed up with drivers
regularly, negative incidents decreased dramatically. Make
the collected data visible to those involved. Post risky behavior
for all to see. Groups that embraced the public sharing of
infor­mation performed better.
•For young drivers, design the program to appeal to their
sensibilities. Concentrate on social media to communicate
with them. Make the program fun and the application engaging.
Use clear, text-like messages on the phone, and make sure
information is easily and readily accessible. Use continuous
feedback for this age group. That includes real-time incident
reporting, direct discussions for serious infractions, and
following up to make sure drivers correct deficiencies.
Visualize | Q4 2014
17
•Focus on consequences for both good
and bad driving behavior:
–Discuss how driving behavior can affect
insurance coverage, both positively
(reduced premiums) and negatively
(loss of insurance).
–In the United Kingdom, one program
concentrated on the consequences of
negative behavior and saw a major
reduction in such behavior. U.S.
programs tend to emphasize a more
positive focus.
–Use positive feedback to make drivers
feel more confident. Discuss how the
telematics program can benefit them
in other ways, such as with legal help
or tracking engine performance. That
encouraged good behavior in drivers.
•Most people can’t accurately judge their
own driving behavior, but telematics data
can determine whether a participant is
a “safe” or “risky” driver. For example,
people who’ve never had an accident or
received a ticket might still qualify as bad
drivers, while some people who drive fast
may have a greater awareness of their
surroundings and qualify as good drivers.
•There are differing opinions on real-time
feedback:
–Some people think real-time feedback is
a distraction and dangerous. They believe
threshold-based programs, such as using
devices that beep to indicate speeding,
oversimplify the analytics and don’t
give drivers confidence. Drivers need
to understand the relation to risk, and
program designers need to give drivers
more credit when creating the program.
–Others believe threshold-based
programs with warning systems can
improve behavior because they provide
instant feedback and can strengthen
the correlation between driving
behavior and consequences. Drivers
can get used to warning systems so
that they’re not distractions.
Overall, the panel agreed that reducing risk
by improving driver behavior is one of the
most important aspects of a UBI program.
As proven in several Verisk studies, an
incentive such as an insurance discount
that depends on driving behaviors is a
significant motivator to improve driving.
Data without context won’t help drivers
understand what they did wrong.
18
Verisk Insurance Solutions | ISO AIR Worldwide Xactware
In the news
Here’s a look at some of the
newsworthy happenings at Verisk:
ISO’s Next-Generation Analytic Tool
Measures Geographic Factors of
Personal Auto Risks
Use of Analytics for Homeowners
Ratemaking Is Increasing, According
to New Verisk Insurance Solutions/
Earnix Study
Verisk Insurance Solutions –
Underwriting Offers Homeowners
Insurers a New Way to Incorporate
By-Peril Ratings into the Rating and
Underwriting Process
Verisk conferences
Every year, Verisk sponsors conferences to help you keep current on important issues,
learn new techniques and best practices, network with your peers, and meet our expert
staff. Here’s a look at what’s ahead:
Insurance Fraud Management
Conference
March 22–25, 2015
Coronado, California
Xactware User Conference
February 10–11, 2015
Salt Lake City, Utah
Xactware, a Verisk
Analytics business,
is hosting its sixth
annual Xactware
User Conference.
Educational and
informative sessions will offer a wide
variety of topics, including home restoration
to pre-loss condition and commercial loss
estimation. We’ll also introduce attendees
to our latest innovations in our interactive
Xperience Lab.
Xactware Chief Executive Officer Jim
Loveland will deliver the keynote address,
examining new technologies and examples
of innovative leadership shaping the
property insurance industry.
Register here
Casualty Actuarial Society
Ratemaking and Product
Management Seminar
March 9–11, 2015
Addison, Texas
In support of the Casualty Actuarial
Society (CAS) mission to advance
knowledge of actuarial science
applied to property/casualty insurance
and risk exposures, Verisk is pleased
to be a platinum sponsor at this CAS
seminar. We’ll also be exhibiting at
the show and featuring our key
analytic and decision-making tools.
Each year, key decision makers
in insurance fraud management
attend the IFM Conference.
Sessions throughout the
conference offer a comprehensive range of information you
need to develop, implement,
and manage insurance fraud
prevention programs.
General session and workshop
topics include cross-border fraud,
investigative ethics, trends in
workers compensation fraud,
premium fraud, and the effects of
the Affordable Care Act on SIUs.
Our Verisk experts will also be
speaking at sessions on ratemaking,
predictive modeling, automobile
and homeowners telematics, data
management, and personal and
commercial lines emerging issues.
Visualize | Q4 2014
19
Verisk web seminars
Verisk experts speak about hot industry topics
Upcoming
Sign up for complimentary upcoming seminars. Here’s one that might interest you:
PCS Catastrophe Year in Review
Monday, December 15, 2014
Join Joe Louwagie, assistant vice president of Property Claim Services® (PCS®), to review U.S. and
Canadian catastrophe activity for the year. Gain new insight into PCS’s plans for 2015 and beyond.
On Demand
In case you missed them, you can also listen to these on-demand seminars.
Social Media Analytics Applied
to Emerging Risks
As competition continues to
increase in the commercial
auto market — and the need
for automation with it —
there are limited tools
available to help produce
higher-quality data while
enhancing the customer
experience. We show you
one way to provide ease
of doing business while
collecting higher-quality data
at the point of underwriting.
Insurers are grappling with social and
technological advancements, including
ridesharing and house sharing, connected
homes, 3D printers, and self-driving cars.
Traditional data sources, such as policy and
claim databases, don’t lend themselves to
a timely analysis of the issues. We look at
techniques for deriving business intelligence
using unstructured data from social media
websites. We discuss exploratory data
analysis, sentiment analysis, and supervised
and unsupervised learning. We then apply
those techniques to Twitter posts describing
emerging risks to gain a greater understanding
of the underlying issues.
PCS Q3 2014 Summary:
Cat Bond Review, Cat Overview,
and a PCS Update
Despite a silent third quarter,
catastrophe bond issuance activity
remains high in 2014. Yet it’s the
underlying dynamics — such as
cat bond lite* — that make the year
interesting. Get an understanding
of the underlying market dynamics
likely to shape the market through
2015 and beyond.
*48 private catastrophe bond or insurance-linked
securities (ILS) issuance
VIS2014Q4 (11/14) z14001
Commercial Auto:
Prefill to Refill