Insuring your property is one of the largest annual expenditures that American homeowners face and like most bills, it’s not pleasant for them, particularly for those that they live in Florida where reinsurers re-underwrite their book 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 Florida-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 way we wanted to use it.”

Insurers dealt with events that took larger chunks of surplus than they had 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 some exposures, even to the point of excluding incidents 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 so he 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 needed to do things differently at Bankers because we were using the data to more or less pre-rate the state.”

Martin looked at other possibilities, but in 2011 he found it difficult to find anyone who could provide the amount of information Bankers needed. Bankers decided to stay with 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 underwriting 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 would require a subscription you might never use. So the amount of data and the insurance focused team were all key parts of this.”

Even with an experienced underwriting staff, insurers have difficulty getting to a predictive process, points out Martin. The method to make the quote up front rather than post-quote is easier to program and maintain than the traditional post-binding underwriting model because the carrier has 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 they have processes that 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.

Bankers made the transition in Florida from December of 2011 to June of 2012 and got it fully operational early in 2013. “We knew what we wanted to build by the summer of 2012 and put the pieces in place,” says Martin. “The other states have come along in half steps. You can do some screening work in advance of the programming and you can do some portfolio management.”

Florida is a state where insurers should be able to innovate in their underwriting processes, points out Martin. He doesn’t believe it is any more difficult to write policies there than anywhere else because insurers can experiment more than in other states.

“There is more room to react to your mistakes,” he says. “In a weird way, while the reinsurance game is tough, the underwriting game attracts more innovation, and the tight market rewards innovation.”

The first thing Bankers did with the model after pre-rating the state was deciding which risks were underpriced. Because the model was so strong, Martin explains the carrier had to walk away from just three percent of their policyholders. Another small group agreed to changing 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 and 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 yet, 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 price.”