Tag Archives: homeowner’s insurance

Homeowners Quoting: Is Process Improving?

One of the big areas of focus across the insurance industry, in general, has been to streamline the application/quoting process. Whether it’s agents who are submitting applications for their customers or individuals and business owners filling out their own applications, there is a recognition that faster and simpler is the way to increase customer acquisition. Many insurers have been improving the user interface, leveraging data prefill capabilities or even rethinking what data is really needed to underwrite a particular line and application. Examples abound for personal auto, small commercial, renters, workers’ comp and other lines. This brings us to the question of homeowners insurance. Are the same factors at work here? And is the industry making progress?

This summer, SMA conducted a mini research study to gain some insights. Applications for quotes were placed for a small number of homes in three states with 20 prominent insurers and MGAs. We conducted a similar study in 2010. Due to the complexities and variations in homeowners insurance by state, and types/sizes of homes, the research is not comprehensive enough to be statistically significant. (Also, we did not consider comparative rater sites for this project.) Nevertheless, the survey does give us a good idea of the state of the user interface for quotes, how much data insurers require, the types of data underwriters are requesting and the level of prefill underway.

See also: The Reinsurers Are Coming!  

This project led to a few top-line conclusions and insights:

  1. Estimating home value/replacement cost – a central element for quoting – is difficult but still reflects mostly the inside-out view by insurers (questions asked from the insurer’s viewpoint): What information do I need to make sure I understand all the exposures and costs before I price it? Few are thinking outside-in: How can I make this easy for the homeowner? (The insurtech Hippo is an exception.) For the homes we used, which ranged in value from $225,000 to $600,000, the number of data fields requested ranged from 15 to 60-plus. On average, there are over 30 data fields requested, only slightly better than 10 years ago. The time to get an initial quote ranged from two minutes to 20 minutes.
  2. The UI has improved in the last 10 years – with more radio buttons, better visual appeal and responsive design elements. But there are still lots of data fields for the customer to fill in and limited prefill.
  3. Even among the top insurers, many still do not offer online quotes. Many refer prospects to the agent immediately. Some ask a few questions first and then refer to an agent.
  4. Unlike with many other insurance products, there are relatively few direct-quote-access insurtechs. There are a number of aggregators, but they follow the requirements of the insurers. The lack of insurtech focus may be the result of the complexity of the line of business.

We understand the difficulties related to this line, including the limited availability of property characteristic data for older homes, the variability in perils by geographic area and the uncertainties related to CATs. In fact, because of the region-specific catastrophe issues, there appears to be a hesitancy to do on-line quoting. The amount of data needed to quote/underwrite for things like sinkholes, coastal winds, floods, wave-wash, wildfires, earthquakes and hail make it difficult, but not impossible, to generate a seamless on-line experience.

In addition, from an insurer perspective, insurance to value (replacement cost) at a book level is pivotal to profitability. Because of this, there appears to be a reluctance to let go of the building characteristics questions. In the limited instances where they are prefilled, there is a validation process. Where they are not prefilled, they must be answered by the insured. Frankly, most people cannot answer structure questions about homes they have lived in for a long time. And the number of questions asked about the structure varies significantly.

See also: An Insurance Policy With Some ‘Magic’  

So, yes, it is a challenge to create the five-question, two-minute online experience that many are striving for in other lines. But most customers don’t understand or care about the complexities.

In the near term, the answer to this challenge lies in integrating external data from real estate databases, tax records and other sources of dwelling/structure data for prefill. Validating information is significantly easier than inputting data. The homeowners line cannot be the odd man out in the quest for ease of doing business in a digital world. The insurer/agents/MGAs that rethink this process from the outside-in customer perspective will be positioned for market growth.

The Future of Home Maintenance

Like your health, your pets or your car, your home requires regular maintenance to keep it running smoothly and working properly. Homes that are well-maintained are safer, require fewer costly repairs and retain more of their value. Few will argue the benefit of a well-cared-for home, yet today’s owners are expected to know about and conduct their own preventative maintenance.

Homes are the typical American’s most valuable asset, and yet we don’t care for them as well as we care for our cars that cost a fraction of the amount. Homeowners are responsible for the physical management of their property, including regular/preventative maintenance, emergency repairs and improvements, all without the training or expertise necessary.

So what does this mean for the homeowner?

The lack of expertise and training results in routine maintenance and small issues going ignored and undetected until a major failure occurs and requires a costly repair. For example, cracked caulk around a window may not seem like much, but water damage could result in a $5,000 repair that could have been prevented by a $4 tube of caulk and a half-hour of time. The national statistic on the cash value of home maintenance states that, for every $1 that is spent on maintenance, up to $100 of repairs are avoided.

Americans spent an average of $9,081 on home services in 2018, and fixing damage, defects or decay is cited as a top reason. In many cases, small preventative measures can prevent outsized expenses (dryer vent cleaning preventing fire; dishwasher drain filter cleaning preventing flood). For example, 13% of home fires annually are caused by electrical system failures. When was the last time you checked your outlets or breaker panel?

The lack of preventative maintenance has a real impact on property insurers, as well. Issues like old and corroded water heaters, left unaddressed, have the potential to result in expensive insurance claims, not to mention a really negative experience for the homeowner. Moreover, consumers are starting to realize they aren’t the experts they need to be when it comes to their homes and are looking to their insurers to help given the aligned interests. Research shows that 34% of consumers would be willing to switch to an insurance carrier that offered preventative loss and protection services.

How can we reshape the future of home maintenance?

As our homes continue to get more complicated and we have less free time, it’s critical that homeowners ensure their homes receive the proper care. However, according to a recent study by Bankrate, the #1 frustration of millennial homeowners is underestimating the costs and the continuing responsibilities of maintaining their home. This frustration, coupled with the lack of expertise, shows us that the future of home maintenance will be provided by trusted parties, like insurers, lenders and others with a vested interest in the home.

What’s less clear is if carriers will be able to adapt to the change and offer their customers the services they’re increasingly expecting — either with their own offerings or by partnering with new companies in the insurance ecosystem. In the future, managed home services and connected devices will allow insurers to move from a reactive model to a proactive one so that they could detect problems before they pop up and result in preventable claims. If this approach is implemented, insurers could meaningfully manage risk as well as deliver a more engaging customer experience — helping bring one of the last major antiquated industries into the modern world. The adage holds true: An ounce of prevention is worth a pound of cure when it comes to home maintenance.

3 Ways to Secure a Vacation Home

It’s nice having a vacation home to escape to, especially when the summer rolls around. But because you probably spend more time at your primary home, keeping bad guys away from your cabin in the woods or your beachfront property can be tricky. Read on to learn more about steps you can take to protect your second home.

Bulk up security

According to recent statistics, about 30% of household burglaries in the U.S. happen when a thief enters a home through an unlocked door or window. Installing deadbolt locks and burglar alarms are some of the best ways to prevent theft. Buying a system that lets you monitor what’s happening is another way to keep people from breaking into your vacation home.

You can install cameras that send real-time video footage straight to your smartphone or tablet. We recommend putting one camera outdoors and another one in a strategic spot inside of your home. You can monitor the feeds yourself or opt for someone else to do it.

Cameras can potentially keep burglars from attempting to enter your home. You may also want to consider buying other smart devices, like leak detectors, smart lights and locks that can be controlled remotely no matter where you are.

Make connections in the community

Your vacation home may be a place you visit occasionally. But it’s important to make friends with your neighbors. If you find someone who lives in the community throughout the year, you could rely on them for information. If something happens to your vacation home, that person could be your point of contact. Close-knit communities like to look out for each other and you don’t want to feel like you’re the odd one out.

You might be surprised. A trusted friend or observant neighbor may know a lot about what happens when you’re not around. Let the person know when you’ll be in town and, more importantly, when you’ll be away. The person can keep an eye out for strange activity. Give the person your phone number and a spare set of keys so he or she can act quickly if something goes wrong.

See also: Smart Home = Smart Insurer!  

In some areas around the country, you can also register for a house check. A police officer or registered volunteer can walk around the perimeter of your vacation home when you’re not in the area. Just keep in mind that, in some places, house checks can only be done for a period of up to 30 days per calendar year.

Bonus tip: You’ll also want to make your home look lived-in, even if you’re only there a few times a year. Thieves often look for easy targets like a home that’s unoccupied for weeks throughout the year.

Make sure you have enough insurance

If you plan to rent your vacation home to others, you may want to meet with an insurance professional. There are different risks associated with having a second home, and your standard homeowners policy may not cover damages that occur when someone is renting your home. According to the Insurance Information Institute, you may need to purchase additional coverage.

Letting family members or other guests spend a day or two in your vacation home may not be a big deal. But you should consider getting a business policy if you plan to regularly rent your home for a week or more at a time. For long-term rentals (meaning that someone is spending time in your vacation home for six months or more), you’ll need a landlord or rental dwelling policy. Landlord policies cover physical damage to the structure of a second home, personal property and liability if someone gets hurt.

In most cases, landlord policies also provide financial support if you can’t rent your property or make money while it’s being repaired after a covered loss. Just note that landlord policies generally cost about 25% more than the typical homeowners policy.

See also: When It’s Better to Build In-House  

Before you go

Protecting your vacation home is important. Because you aren’t around as often, it’s best to buy security cameras, ask others to check up on your home and make sure you have enough insurance coverage. Before you leave the premises, double-check and make sure you’ve locked up all of your valuables. You don’t want to wait until it’s too late to make an effort to keep your second home safe.

The Scooter Craze and Insurance

Recently, Insurance Thought Leadership.com ran an article by editor Paul Carroll called “The Future of Mobility Takes a Surprise Turn.” It’s about the emergence in urban, particularly downtown, areas of “micromobility,” aka “scooter sharing.” Some vendors are making electric scooters available, one being a startup called Bird, which reportedly has raised capital at a valuation of $2 BILLION. Another, Lime, has a valuation in excess of $1 billion. Both Uber and Lyft are experimenting with scooters.

I live in the Nashville, TN, area, and the (mis)use of these scooters has been a high-profile news story. Visiting my son yesterday, I was amazed by the number of scooters flying by on sidewalks and streets; they created the appearance of a moving obstacle course. Paul’s article cites a Washington Post article about the number of people who are ending up in hospital emergency rooms as a result of scooter accidents, both operators and victims. That is almost certainly going to increase, creating an emergency and significant risk that must be managed. One way to manage risk is insurance.

So, what are the insurance implications? First of all, I have no idea what liability insurance these vendors provide, if any, for themselves or operators. In this article, I’m addressing the operators’ and victims’ own P&C insurance policies. Because I can’t cite the precise language of every P&C policy in the marketplace, my observations will necessarily be generalized and, I hope, spur inquiries by readers into what liability coverage, if any, is provided by the policies they sell.

See also: Will Technology Kill Auto Insurance?  

Personal Auto Policies

Few, if any, PAPs would provide liability coverage for vehicles not specifically designed for use on public roads. Many policies expressly limit coverage to motor vehicles of the private passenger, pickup or van variety. Medical payments, uninsured/underinsured motorists and no-fault coverages MIGHT apply to someone struck by a vehicle designed for use on public roads, but that depends on the UM/UIM and no-fault statutes or case law in each state.

Homeowners Policies

Homeowners policies vary significantly in how they treat motor vehicles, but it is probably safe to generalize that most of them will not provide coverage for vehicles that do not service a residence, are not designed to assist the handicapped or otherwise are used off an insured location. In addition, most HO policies have fairly stringent business use exclusions, and it appears that these scooters are sometimes used for business travel.

Business Auto Policies

While the eligibility requirements of most BAPs are not as restrictive as PAPs, an unlicensed motorized scooter that is not subject to motor vehicle laws could conceivably meet the definition of “mobile equipment,” something that sends us a CGL policy….

Commercial General Liability Policies

Motor vehicles not subject to MV laws that are “designed for use principally off public roads” may qualify as “mobile equipment” and may, therefore, be covered under CGL policies. The $64,000 question is whether these vehicles are designed for use off public roads, regardless of how they are operated.

See also: The Need to Educate on General Liability

Needless to say, we have more questions than answers. Do the policies you sell cover these exposures? Are your customers asking about this?

Blockchain’s Future in Insurance

Blockchain is a revolutionary technology that is likely to have a far-reaching impact on business – on a par with the transformative effect of the internet. Not surprisingly, the huge potential promised by blockchain has prompted a flurry of research activity across different sectors as diverse organizations race to develop applications.

In this article, we’ll explore the many benefits that blockchain could bring to the insurance industry and the different challenges that will need to be overcome.

Overview

Blockchain has strong potential in the short and long term in several different areas, particularly where it links with emerging technologies such as the Internet of Things (IoT) and artificial intelligence (AI). But its potential for delivering new applications also depends on the development of blockchain technology itself. In the medium and short term, there are three categories where blockchain can be applied:

  • Data storage and exchange: Numerous data and files can be stored using blockchain. The technology provides for more secure, traceable records compared with current storage means.
  • Peer-to-peer electronic payment: Bitcoin (and other blockchain-based cash systems) is a cryptographic proof-based electronic payment system (instead of a trust-based one). This feature is highly efficient while ensuring transparent and traceable electronic transfer.
  • Smart contracts: Smart contracts are digital protocols whereby various parameters are set up in advance. When pre-set parameters are satisfied, smart contracts can execute various tasks without human intervention, greatly increasing efficiency.

Data storage and peer-to-peer electronic transfer are feasible blockchain applications for the short term. At this stage, the technical advantages of blockchain are mainly reflected in data exchange efficiencies, as well as larger-scale data acquisition.

See also: The Opportunities in Blockchain  

Smart contracts via blockchain will play a more important role in the medium to long term. By that time, blockchain-based technology will have a far-reaching impact on the business model of insurance companies, industrial management models and institutional regulation. Of course, there will be challenges to overcome, and further technological innovation will be needed as blockchain’s own deficiencies or risks emerge during its evolution. But just like internet technology decades ago, blockchain promises to be a transformative technology.

Scenarios for blockchain applications in insurance

Macro level

Proponents of blockchain technology believe it has the power to break the data acquisition barrier and revolutionize data sharing and data exchange in the industry. Small and medium-sized carriers could use blockchain-based technology to obtain higher-quality and more comprehensive data, giving them access to new opportunities and growth through more accurate pricing and product design in specific niche markets.

At the same time, blockchain-based insurance and reinsurance exchange platforms – that could include many parties – would also upgrade industry processes. For example, Zhong An Technology is currently working closely with reinsurers in Shanghai to try to establish a blockchain reinsurance exchange platform.

Scenario 1 – Mutual insurance

Blockchain is a peer-to-peer mechanism, via the DAO (decentralized autonomic organization) as a virtual decision-making center, and premiums paid by each and every insured are stored in the DAO. Each and every insured participant has the right to vote and therefore decide on final claim settlement when a claim is triggered. Blockchain makes the process transparent and highly efficient with secure premium collection, management and claim payment thanks to its decentralization.

In China, Trust Mutual Life has built a platform based on blockchain and biological identification technology. In August 2017, Trust Mutual Life launched a blockchain-based mutual life insurance product called a “Courtesy Help Account,” where every member can follow the fund. Plus, the platform reduces operational costs more than a traditional life insurance company of a similar size.

Scenario 2 – Microinsurance (short-term insurance products for certain specific scenarios)

An example of short-term insurance could be for car sharing or providers of booking and renting accommodation via the internet. Such products are mainly pre-purchased by the service provider and then purchased by end users. However, blockchain makes it possible for end users to purchase insurance coverage at any time based on their actual usage, inception and expiring time/date. In this way, records would be much more accurate and therefore avoid potential disputes.

Scenario 3 – Automatic financial settlement

The technical characteristics of blockchain have inherent advantages in financial settlement. Combined with smart contracts, blockchain can be applied efficiently and securely throughout the entire process of insurance underwriting, premium collection, indemnity payment and even reinsurance.

Micro level

Blockchain has the potential to change the pattern of product design, pricing and claim services.

Parametric insurance (e.g. for agricultural insurance, delay-in-flight insurance, etc.):

Parametric insurance requires real-time data interface and exchange among different parties. Although it is an efficient form of risk transfer, it still has room for further cost improvement. Taking parametric agricultural insurance and flight delay insurance as examples, a lot of human intervention is still required for claim settlement and payment.

With blockchain, the efficiency of data exchange can be significantly improved. Smart contracts can also further reduce human intervention in terms of claim settlement, indemnity payment, etc., which will significantly reduce the insurance companies’ operating costs. In addition, operating efficiency is increased, boosting customer satisfaction.

Some Chinese insurers are already working on blockchain-based agricultural insurance. In March 2018, for example, PICC launched a blockchain-based livestock insurance platform. Currently, the project is limited to cows. Each cow is identified and registered in the blockchain-based platform during its whole life cycle. All necessary information is uploaded and stored in real time in the platform. Claims are triggered and settled automatically via blockchain. The platform also serves as an efficient and reliable food safety tracing system.

Auto insurance, homeowners insurance: 

Blockchain has wider application scenarios in the field of auto insurance and homeowners insurance when combined with the IoT. There are applications from a single vehicle perspective as well as portfolios as a whole. From a standalone vehicle perspective, the complete history of each vehicle is stored in blocks. This feature allows insurers to have access to accurate information on each and every vehicle, plus maintenance, accidents, vehicle parts conditions, history and the owner’s driving habits. Such data facilitates more accurate pricing based on dedicated information for each and every single vehicle.

From the insured’s point of view, the combination of blockchain and IoT effectively simplifies the claims service process and claim settlement efficiency.

From the perspective of the overall vehicle, blockchain and IoT can drastically lower big data acquisition barriers, especially for small  and medium-sized carriers. This will have a positive impact on pricing accuracy and new product development in auto insurance.

Taking usage-based insurance (UBI) for autos as an example, it’s technically possible to record and share the exact time and route of an insured vehicle, meaning that UBI policies could be priced much more accurately. Of course, insurers will have to consider how to respond in situations where built-in sensors in the insured vehicle break or a connection fails. Furthermore, insurance companies also have to decide whether an umbrella policy is needed on top of the UBI policy, to control their exposure when such situations occur.

Cargo insurance:

Real-time information sharing of goods, cargo ships, vehicles, etc. is made possible with blockchain and the IoT. This will not only improve claims service efficiency but also help to reduce moral hazards.

In this regard, Maersk, EY Guardtime and XL Catlin recently launched a blockchain-based marine insurance platform cooperation project. Its aim is to facilitate data and information exchange, reduce operating costs among all stakeholders and improve the credibility and transparency of shared information.

International program placement and premium/claims management:

Blockchain-based technology allows insurance companies, brokers and corporate risk managers to improve the efficiency of international program settlement and daily management, at the same time reducing data errors from different countries and regions and avoiding currency exchange losses.

Coping with claim frauds:

Blockchain is already being applied to verify the validity of claims and the amount of adjustment. In Canada, the Quebec auto insurance regulator (Québec Auto Insurance) has implemented a blockchain-based information exchange platform. Driver information, vehicle registration information, the vehicle’s technical inspection result, auto insurance and claims information, etc. are all shared through the platform. The platform not only reduces insurance companies’ operating costs but also effectively helps to reduce fraud.

All insurance companies that have access to the platform receive a real-time notice when a vehicle is reported to be stolen. Insurance companies have full access to every vehicle’s technical information, which promotes more accurate pricing for individual policyholders.

Claims settlement:

Using a smart contract, the insured will automatically receive indemnity when conditions in the policy are met: Human intervention will not be needed to adjust the settlement. In the future, some insurance products will effectively be smart contracts whereby coverages, terms and conditions are actually the parameters of the smart contract. When the parameters are met, policies are triggered automatically by the smart contract and a record stored in the blockchain.

Business models like this will not only build higher trust in the insurance company but will also greatly increase its operational efficiency, reducing costs; it will also help to reduce moral hazard.

Internal management systems:

Internal management systems could be automated through use of blockchain and smart contracts, helping to improve management efficiency and reduce labor costs as well as the efficiency of compliance audit.

See also: How Insurance and Blockchain Fit  

Challenges and problems

Decentralization strengthens information sharing and reduces the monopoly advantages that information asymmetry provides. Under such circumstances, insurance companies have to pay more attention to pricing, product development, claims services and even reputation risk. All this adds up to new challenges for the company management.

At the same time, every aspect of the insurance industry must be more focused on ensuring the accuracy of original information at the initial stage of its business. Knowing how to respond to false declarations from insureds will be crucial.

From a more macro perspective, “localized blocks” of data will be inevitable in the early phase of development in line with the pace of technical development and regulatory constraints.

In theory, it is impossible to hack blockchain, but data protection will be an issue for localized blocks. Therefore, higher cyber security protection will be required to protect these localized blocks.

The interaction of blockchain with other technologies could mean that existing intermediary roles are replaced by new technologies in different sectors. If the insurance industry wants to ensure the continuous development of the intermediary, it should address the possible disruptive risks to existing distribution business models posed by blockchain.

The necessary investment (both tangible and intangible costs) associated with adopting blockchain technology is a big consideration for many companies at this stage. Insurance companies and reinsurance companies operate numerous systems, and the decision to integrate blockchain-based technology/platform shouldn’t be taken lightly. At the current stage of blockchain evolution, this could be one of the biggest obstacles facing insurers.

Overall, blockchain is an inspiring prospect, and there is every reason to believe that this technological breakthrough will bring positive effects to individual insurers everywhere. But at the same time, we need to understand the mutual challenges that lie ahead and work together to promote our industry’s development in what promises to be an exciting new era.

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