September 10, 2021

When insurance carriers begin the underwriting process for a new customer, there aren’t many stones left unturned — especially in property and casualty insurance. Sound underwriting remains essential for insurers to evaluate risks, determine limits and set appropriate pricing for each policy.

Edmunds.com lists the common factors auto insurers take into consideration: driving record, type of car, coverages/liability limits and credit score. Personal information like gender, age, occupation and residence also play a role. 

The combination of factors helps insurers fine tune the risk of providing coverage to a potential client. For example, someone with a good driving record and average credit score may seem like a safe risk until you factor in where they live, what they do for a living and how often they drive. 

Providers that offer telematics-based auto insurance have seen growing consumer interest in having their driving tracked and measured by a tool in an effort to reduce premiums based on safe behavior. Boston-based Plymouth Rock Assurance’s Road Rewards program has no penalties but provides guidance and rewards for safer driving behavior. 

“It can provide coaching oversight self-awareness for those young drivers as they improve, while providing rewards for good driving along the way,” Plymouth Rock Assurance president, Mary Boyd, said in an article for the Insurance Innovation Reporter. “So there’s a whole lot of carrot, very little stick.”

Home insurance shares some underwriting factors with automotive and adds some others. Bankrate.com, a consumer financial services company that also reviews property-casualty insurance companies, mentions additional factors like how far a home is from a fire station or the water — of increased importance given increasingly wild storm events  — or even the breed of dog in the home. 

“Attractive nuisances” – things that could be dangerous, especially around children – on and around the property uncovered during underwriting can increase rates. Pools, trampolines, treehouses, outdoor playsets and any nearby construction can all play a role.

While property-casualty insurers are apt to consider numerous factors, each state has its own regulations that oversee everything from market conduct, licensing, rates, policy language and the financial standing of the insurer. The American Insurance Association (AIA) explains that some states have laws, for example, the Unfair Trade Practices Acts and Unfair Claims Practices Acts, which protect consumers from being coerced into buying certain coverages and protect them in the event of a covered claim.

Deloitte issued a report analyzing the state of regulation and compliance across the industry and assessing the ways state regulations and enforcement might evolve under new leadership in Washington. 

“President Biden’s new administration may potentially reverse certain aspects of the prior administration’s aggressive deregulation,” Deloitte notes. “Meaning the insurance industry might once again find itself challenged by what had been an evolving ‘dual’ regulatory system.”

While the economy continues to prove its resilience, the pandemic has had a significant impact on the property-casualty insurance industry. A McKinsey report from 2020 found that carriers will have to adjust to fluctuating markets with “real-time pricing, contextual marketing, behavioral pricing and anti-selection avoidance,” especially with more consumers shopping online.

“Smaller insurers… will be increasingly challenged to invest at scale to meet new customer expectations and industry best practices,” the McKinsey report explains. “Gaining access to data and analytics capabilities requires skill in choosing the right partnerships and acquiring technology investments.”

The data gathered from the underwriting factors also play a role in predictive analytics. Because this data also contains sensitive consumer information, security to protect privacy and safety remains paramount. DRC offers a suite of automated, secure analytics solutions to help underwriters that compile, process and store data without restrictions on the data type or size. To learn more about how DRC Analytics can automate manual underwriting processes, visit the Our Solutions page.

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