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Analytics for Homeowners Ratemaking on the Rise: Verisk/Earnix Study

Staff Writer | October 23, 2014

Verisk Insurance Solutions and Earnix released the results of a joint industry study that reveals the use of analytics for homeowners ratemaking is increasing, with 57 percent of survey respondents now using predictive modeling for homeowners loss cost development. Only 13 percent of the respondents now use predictive models for retention and new business conversion in their rate setting process.

This survey, Homeowners Insurance Ratemaking Approaches Survey, was conducted to help insurance executives uncover best practices in ratemaking approaches used by North American insurance companies in their homeowners business. Survey responses were collected online from 99 insurance professionals representing companies that sell homeowners coverage in the United States and Canada.

Additional findings include:

  • Top challenges in the ratemaking process mentioned by respondents include time lag for implementing new rates, using new data sources, and managing rate dislocation.

  • The top concern for homeowners insurers identified by respondents is roof losses.
  • Eighty-two percent of the larger respondents (over $500 million in Gross Written Premium) use a by-peril rating structure.
  • Forty-three percent of respondents still offer renewal discounts.
  • Inspection practices vary widely, with 27 percent of respondents indicating that 100 percent of all home submissions are inspected, while 28 percent inspected less than a quarter of new homes.

"It's no secret that homeowners business has historically taken a back seat to the auto business for insurance carriers when it comes to profitability and pricing sophistication," says Meryl Golden, general manager of North America Operations at Earnix. "With the realization that companies can no longer look to the auto market to hit their growth goals, insurers are now focused on improving their homeowners pricing sophistication and use of analytics. We see indications that the use of analytics for homeowners’ ratemaking is increasing, but there's still plenty of catching up to auto that needs to be done."

"We worked with Earnix to conduct the study to better understand the concerns of customers as they relate to the homeowners market and to help homeowners insurers uncover best practices and benchmark their ratemaking approaches against those of their peers," says David Cummings, senior vice president, ISO Insurance Programs and Analytic Services. "The survey confirms the movement by some large companies towards using a by-peril rating structure for homeowners.”

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