Addressing Homeowners Underwriting with Behavioral Risk Predictions

Carrier Managementrecently published a release from AM Best revealing that the homeowners insurance sector suffered an underwriting loss amounting to $15.2 billion in 2023. This loss is more than double that of the previous year and marks the worst underwriting results since 2000. This spike is attributed to increased weather-related events and shifting population demographics, leading insurers to confront significant challenges in underwriting and risk assessment.

The Evolving Landscape of Homeowners Insurance

The homeowners insurance market is under intense pressure due to a combination of factors:

• Population Shifts and Real Estate Development: Growing populations and new developments in high-risk regions exacerbate underwriting difficulties.
• Unpredictable Weather: Increased frequency and severity of weather-related events make risk prediction more complex.
• Market Disruptions: Factors like social inflation, macroeconomic pressures, rapid innovation demands, and heightened competition are intensifying the strain on insurers. Litigation management costs surged 19% from 2018 to 2023 for the combined P&C sector, reflecting an approximate $24 billion loss adjustment expense (LAE).

These issues are compounded by a surge in consumer insurance shopping, a rise in higher-risk policies, and an increase in long-time policyholders switching carriers. Insurers are forced to make tough choices, such as raising premiums, exiting markets, or discontinuing certain coverage lines. These pressures are preventing the industry from achieving necessary positive outcomes critical for future profitability.

The Burden on Underwriters

Amid the ongoing market uncertainty, underwriters particularly are facing significant challenges:

• Overwhelming Submission Volume: An influx of submissions strains underwriting resources.
• Inaccurate Risk Prediction: Traditional methods based on demographic data and zip codes are proving to be inadequate, necessitating more precise risk assessment tools.
• Data Quality Issues: Poor-quality or unstructured data and manual processes further complicate risk assessment.

Underwriters are questioning why the process is so burdensome and how it can be alleviated. The crux of the issue is underwriting profitability, crucial for maintaining healthy bottom-line results. Fortunately, there are modern solutions to address these goals.

Modernize Risk Assessments with Behavioral Predictions

Traditional underwriting relies heavily on demographic data and location. Enhanced risk assessment goes beyond traditional methods such as ZIP Codes and credit scores by incorporating individual behavior and decision-making patterns.

Underwriters today can access a wealth of data outside traditional risk variables to deepen the understanding of their policyholder's risk profile. By utilizing AI-powered behavioral predictions, which incorporate information about consumer activity, interests, buying choices, etc., underwriters can more accurately predict outcomes relevant to insurance underwriting performance.

To remain competitive, insurers must invest in this digital transformation and reduce reliance on complex, manual processes. In fact, a McKinsey analysis found that the most successful carriers are those leveraging the latest technologies to optimize underwriting capabilities. Enhanced approaches for success involve adding:

• Comprehensive Risk Profiles: A detailed view of prospective and existing policyholders to start transforming underwriting workflow.
• AI and Person-Level Insights: Using AI to access powerful person-level insights about customers and their individual risk propensities, which directly impact underwriting profitability.

Leveraging Behavioral Predictions Across the Insurance Value Chain

Using behavioral intelligence represents a transformative shift in insurance underwriting. By incorporating policyholder behaviors into risk evaluation, insurers gain a deeper understanding of risk profiles and individual customer nuances, leading to a more customer-centric approach to coverage. This intelligence offers specific predictions that enhance risk assessment:

• Identifying policyholders with a high propensity to seek an attorney at first notice of loss (FNOL) or a likelihood to litigate.

• Predicting claims frequency and severity for current policyholders and prospective customers.

• Assessing the likelihood of non-payment or early cancellation.
• Determining which prospects are most likely to convert to new customers and predicting their lifetime value.

When insurers identify policyholders with a higher propensity for risk, they can proactively manage these policies more precisely using unique identifiers. Meanwhile, they can handle other policies based on different qualifiers that indicate varying levels of risk. This becomes a game-changer for insurers' ability to predict and review for underwriting.

Empowering Underwriters

Underwriters are tasked with building profitable books with targeted risk profiles. To be successful, they need to make quick, effective, and accurate assessments of the profitability of each policyholder. However, they are often working with limited or convoluted information and are under considerable time constraints.

Utilizing person-level intelligence in underwriting allows underwriters to focus their craft and expertise on the most complex risks. By integrating person-level intelligence, insurers can:

• Identify High-Risk Insureds Early: Early identification of high-risk individuals allows underwriters to focus on the most complex cases, improving resource allocation.
• Improve Efficiency: With simply using a name and address, significant risk insights can be obtained in seconds.
• Enhance Risk Handling: Focus on complex cases while automating the handling of low-risk applications, improving overall workflow efficiency.
• Provide Personalized Service: Offer coverage tailored to individual risk profiles, moving beyond traditional factors like location and credit scores.

Future-Proofing Insurance Underwriting

For P&C insurers, integrating person-level intelligence into underwriting processes offers a more precise and complete view of the policyholder risk profile. This approach helps insurers better prepare for uncertainty, respond to market volatility, avoid adverse selection, and achieve profitable, sustainable growth. These AI-powered behavioral predictions empower insurers to:

• Predict and Manage Risks More Accurately: Identify high-risk individuals earlier and adjust policies accordingly.
• Enhance Customer Understanding: Gain insights into customer behavior, such as propensity to litigate or likelihood of early cancellation, improving risk management strategies.
• Improve Underwriting Profitability: Achieve more accurate risk assessment and better manage underwriting resources, contributing to healthier bottom-line profitability and sustainable growth.

Using Advanced AI Risk Assessment with Pinpoint Predictive

A more comprehensive and inclusive risk assessment requires a deep understanding of the individual behind the policy, as well as incorporating insights into an insurer's decision-making processes as part of risk analysis.

Pinpoint Predictiveempowers underwriters by enabling them to make smarter, more equitable assessments of risk, accurately identifying high-risk and low-risk individuals. This enhanced accuracy in underwriting workflows helps insurers better serve their customers by identifying and quantifying individual risk earlier and more accurately.

By bridging the gap between the most powerful behavioral predictions made by the world's leading tech companies and the specialized requirements of the insurance industry, Pinpoint is delivering unmatched risk-selection capabilities at various points along the insurance value chain.

Conclusion

The homeowners insurance sector faces unprecedented challenges. Behavioral intelligence, centered on individuals, represents the next generation of technology, transforming policyholder risk assessments and offering insights into future customer risks. As the industry adapts to these new technologies, the focus will shift toward more informed, efficient, and customer-centric underwriting practices, paving the way for a more resilient and profitable insurance market. Insurers that integrate these advanced risk assessment tools and insights will ultimately be the most successful in enhancing their underwriting processes, addressing the evolving risks associated with new developments and weather events, and ultimately improving financial outcomes.

Improve your Underwriting Outcomes with Pinpoint

With predictions available earlier and more accurately than any other risk solution on the market, Pinpoint is transforming the P&C insurance industry and helping underwriters drive better outcomes with an AI-powered, real-time solution for precise risk selection. For more information about how Pinpoint can help you, visit www.pinpoint.aior contact [email protected].

Public link

Please use the above public link if you want to share this noodl on another website.