Homeowners No Longer Taking Back Seat to Auto for Insurers

Property/casualty insurers are increasingly using analytics as a tool to help with their homeowners’ pricing, reflecting a belief that the line could become a bigger growth engine than their auto business. At the same time, plenty of room remains for more modernization in their underwriting practices, a new survey found.

“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,” Verisk Insurance Solutions and Earnix found in their new survey of North American insurance companies and best practices for their homeowners business. “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.”

Survey results are based on the responses of 99 insurance professionals representing companies that handle homeowners’ coverage in the U.S. and Canada. They found that insurers handling homeowners coverage widely view analytics as a vital tool to help improve how those policies are assessed and written, though auto coverage practices remain ahead of the pack.

“We see indications that the use of analytics for homeowners ratemaking is increasing,” the report noted.

A survey the firms conducted in 2013 of 269 insurance professionals that sell personal and commercial coverage in North America found that the most common use of predictive analytics was in personal auto, at 49 percent. Homeowners placed a close second, at 37 percent.

The 2014 survey showed both big progress in some ways, but also how far homeowners insurers must come to catch up with technology used by their auto counterparts. On the plus side, 57 percent of homeowners survey respondents now use predictive modeling for homeowners loss cost development. But only 13 percent of homeowners survey respondents said they use predictive models of retention and new business conversion in their rate setting process, versus 29 percent of auto insurers who responded to the 2013 survey.

“It’s evident that homeowners ratemaking approaches still lag behind those of auto when it comes to analytics sophistication,” the report concluded. “As the homeowners business becomes increasingly more crucial to the top and bottom lines of insurance companies, we will continue to see an additional uptick in uses of advanced analytics, such as predictive modeling, in homeowners ratemaking over the coming years.”

Other major findings in the survey:

Homeowners insurers are most concerned about roof losses.

72 percent of respondents use external occupancy data for risk selection and tiering/rating. By contrast, 42 percent use occupant demographics.

Only 27 percent of respondents said that 100 percent of all home submissions are inspected as part of the ratemaking process.