The property and casualty business is constantly evolving, with occasional seismic shifts that can transform the market – and require quick adaptation. The proposed insurance reforms in California are a prime example of such a transformative moment.
The proposed reforms could lead to much brighter days ahead for both insurers and California consumers. To navigate these changes and make the most of the opportunities presented, P&C insurers must review and adjust their strategies in the market.
This article explores three actions insurers can take to excel in this shifting landscape.
See also: Growing Number of Uninsurable Risks
Write the Lowest-Risk Properties in "At-Risk" Areas
Many carriers have likely put forward new or revised rate filings compliant with the April 2023 deadline of Regulation 2644.9 – and are awaiting California Department of Insurance (CDI) approval of their filing. Until these approvals are received, some carriers may hesitate to write in “at-risk” areas.
That may be an overly cautious approach.
The reforms proposed would require admitted carriers to write policies in the wildfire-prone parts of the state – and do so for at least 85% of their statewide market share. For example, if a company provides 10% of policies across California, they would be required to provide 8.5% of the coverage in "at-risk" areas.
We expect smart insurers to race to write policies for the lowest-risk properties in these high-risk areas.
Why is this critical? According to HazardHub data, approximately 25% of properties in the CDI-defined "at-risk" areas are likely profitable with current rates.
Insurers don't have to wait for their last filings to be approved before acting. Identifying these lower-risk properties in "at-risk" areas can give insurers a competitive edge while demonstrating goodwill through early compliance.
Acquire Advanced Analytics
The second action is understanding the importance of high-resolution analytics compared with the existing low-resolution analytics used by most insurers.
Traditional analytic approaches may no longer suffice as they are often (a) insufficiently granular, (b) rely solely on backward-looking data and (c) consider too few variables to assess and differentiate wildfire risk. They also tend to lump all properties into the same risk level across large census blocks or ZIP code regions.
Insurers that quickly embrace more sophisticated approaches will be able to differentiate risk using considerably more variables – and do so at the specific property parcel level instead of the census or ZIP code level.
Insurers that leap forward with advanced analytics will be able to accurately identify, price and manage risk at a granular level, giving them a significant competitive advantage.
See also: Data-Driven Transformation
Reset Strategy and Refile Rate Plans
The third action revolves around resetting strategy and reevaluating rate plans. This will be necessary to align with the proposed reforms and the changing market dynamics. Some steps insurers may take here include:
· Assessing Current Market Share in the At-Risk Area: Evaluate existing market presence in California's "at-risk" areas, understanding the proportion of policies held in high-risk regions.
· Defining Risk Appetite: Reexamine and define their risk appetite, recognizing that insurers will be able to charge premiums commensurate with risk.
· Realigning Marketing Strategies: Adjust marketing strategies to effectively reach and serve homeowners in the state-defined at-risk wildfire regions.
· Differentiating Offerings for Competitive Edge: In a market where not every insurer can compete solely on price, explore ways to provide added value, such as speed, ease of service and innovative coverage options. This differentiation will attract customers and help insurers meet their "at-risk" market share target.
As California moves forward with these proposed insurance reforms, it is clear that the market is entering a transformative chapter. Insurers must strategically adapt to the changes to excel in this evolving landscape. It is imperative for them to evaluate their market presence, redefine their risk appetite, revamp marketing strategies and explore avenues for differentiation. Embracing state-of-the-art risk analytics is essential to their success, equipping them with the capabilities needed to precisely identify, evaluate and price risk