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Keys to Loyalty for P&C Customers

In a rapidly changing industry, some P&C insurers are pulling ahead of their competitors by focusing on customer satisfaction and retention.

“The insurance industry as we know it is at the edge of a new business environment,” says  Michael Costonis , head of Accenture’s global insurance practice. “Breaking away from the pack and capturing new revenue opportunities requires a shift in business mindset – a shift from product-focused to customer-focused.”

Customers want extra benefits, and one way to provide them is to offer value-added services. Travel companies and other insurance branches are already exploring the benefits of value-added services for retaining customers, as  Jamie Biesiada  at Travel Weekly points out. Because P&C insurers have been slower to adopt this strategy, however, many opportunities for capitalizing on this strategy remain.

Here, we look at some of the most popular value-added services in P&C insurance, which of these services focus on building loyalty and how to create the right service offerings or packages to encourage your customers to stay with your company in the long term.

Value-Added Services: The State of the Industry

For many years, P&C insurers have struggled with the challenge of selling a product that is substantially similar to their competitors’ products. “Because customers don’t discern much difference between insurers, companies end up competing largely on price,” write Bain & Co. partners Henrik Naujoks, Harshveer Singh and Darci Darnell . A downward spiral occurs, in which costs and profits are cut and customers jump ship the moment they see the same coverage for a few dollars less.

See also: How to Build Customer Loyalty in Insurance  

When insurers compete on price, customers do what Brandon Carter at Access calls the services shuffle: quitting or threatening to quit their insurance providers to access the same price-lean deals that new customers receive. “My goal is to pay less in a system that actually punishes people for being loyal customers,” Carter explains. Focusing on cost decimates loyalty. Focusing on value can boost it.

Yet insurance companies aren’t making value-added services their first choice when it comes to customer retention  Tom Super, director of the P&C insurance practice at J.D. Power, adds that many P&C insurers are turning to digital tools to court customers, particularly in the auto insurance business.

But digital technology is only a tool. The insurers that will stay ahead of their competitors in the race for customer retention and loyalty are the ones that best leverage that tool to provide the value customers want, says Mikaela Parrick  at Brown & Joseph.

Which Value-Added Services Boost Customer Loyalty?

Value-added services provide an extra benefit that enhances the core product or service. This additional service may be offered at little or no cost for the customer, yet it may make both the customer’s and the insurer’s work easier.

Connecting experience-based services to the product and brand can be a powerful way to encourage loyalty, adds Roman Martynenko , the founder and global executive vice president at Astound Commerce. While this approach is most commonly seen in retail, P&C insurers can adapt it to their needs. A top-of-the-line mobile app or a personalized starter kit featuring smart tools for each customer’s home can make customers feel like they’re part of a family.

Unique, innovative or specially tailored value-added services can also help encourage loyalty and boost customer interest by becoming a cornerstone of an insurance company’s brand.

Value-added services don’t have to be expensive or complex, suggests Mike McGee of Investment Insurance Consultants. For instance, a disaster preparation email sent at the start of tornado or hurricane season can help customers take loss-prevention steps, address safety and feel supported by their insurer, at very little cost to the insurance company.

Partnering with other companies can boost loyalty for both organizations while providing value-added services that attract customers, digital transformation executive Fuad Butt says on the IBM insurance industry blog. For instance, working with telecommunications providers to offer reduced-rate packages can help both companies succeed.

A highly specific partnership that uses existing technology to add value for both customers and companies is the recently announced alliance between Hyundai Motor America and data analytics firm Verisk.

“Hyundai customers will have access to their portable Verisk driving score, which can lead to discount offers on UBI programs and support driver feedback that helps improve their driving,” says  Manish Mehrotra , director of digital business planning and connected operations for Hyundai Motor America. A similar arrangement through an auto insurer can help both insurers and drivers have access to more information to improve safety and make better choices.

Choosing and Implementing Value-Added Services in P&C Insurance

The changing landscape of insurance offers one significant advantage to companies seeking to improve their value-added services: access to data about why customers remain loyal.

“The connections that enable excellent customer experiences aren’t always easy to make,” says Chris Hall of Pitney-Bowes. Siloing fragments customer information, leaving staff without a complete picture of each customer. This fragmentation makes it difficult to determine which value-added services will actually pique customers’ interest.

If data access is an issue, start by de-siloing information to get a better sense of each customer. Then, find the services that best support your organization’s key differences from your competitors.

Kirk Ford , compliance and T&C manager at RWA Business, suggests first considering how you’d like your clients and customers to perceive your brand in relation to competitors. Balance your differences against your similarities so that customers see they’ll receive all the services they need, but with the value-added extras that make their relationship with this particular insurance company meaningful.

See also: The Future of P&C Distribution  

However your insurance organization chooses to add value, resist the urge to announce it to customers merely as being higher-quality. “It doesn’t matter whether or not a company can pull off quality or exceptional service because quality and customer service rarely are differentiating strategies,” adds  Mac McIntire , president of the Innovative Management Group.

Instead,  Ryan Hanley  formerly of Agency Nation, now at Bold Penguin, recommends finding ways your value-added services can improve customer lives. When customers feel a sense of shared values, they’re more likely to stick with their insurance company, rather than risk their luck with a company that may not share those values—even if the prices are lower.

One way to connect with customer values is to change your company’s language surrounding insurance. “If you can sell insurance and not talk about insurance, it’s a win-win,” says  Rusty Sproat , founder of Figo Pet Insurance. He notes that many customers find insurance language obscure and frustrating. That’s why Sproat’s company focuses on providing quality information on pet care and health, switching the conversation to insurance only when necessary to complete a transaction.

Finally, don’t shy away from technology—but use it as a tool rather than a cure-all. Smart home sensors, telemetrics for vehicles and other tech tools are increasingly common in U.S. households, plus they can greatly improve the customer experience, says  Ramaswamy Tanjore  at Mindtree. Consider the best ways to manage telemetric or other data, as well as how to position these tools to best showcase their value to loyal customers.

Bridging Health and Productivity at Work

The wellbeing of our workforces is vitally important because it affects both the top- and bottom-line performance of an organization. Programs that focus equally on the personal health of employees and their professional productivity needs are becoming essential to help companies attract and retain talent. This was the subject of a recent “Out Front Ideas with Kimberly and Mark” webinar.

Our guests were:

  • Fikry Isaac, MD, MPH, the CEO of WellWorld Consulting and the retired chief medical officer, VP global health at Johnson & Johnson.
  • Andrew R. Gold, Pitney Bowes, VP, total rewards and HR technology
  • Alanna Fincke, SVP, director of content, meQuilibrium
  • Brad Smith PhD, VP, analytics and reporting, meQuilibrium

Why It Is Important

Wellbeing benefits individual workers as well as entire organizations and communities. It is a holistic approach that includes the mental, emotional, physical and financial health of the person.

First, wellbeing is a way to engage employees with one another and management within the company. Activities such as walking and fitness programs allow groups to come together in a fun way that helps build trust and camaraderie.

Wellbeing programs also can help employees become healthier by teaching them new habits and helping them get treatment for chronic conditions that they may not be aware they have. A screening, for example, can uncover risk factors for certain illnesses and help workers get the right medical care they need. The employee gets healthier and can continue working and earning a living. From the company’s standpoint, this helps improve productivity and controls the cost of medical care, so it is a win-win for everyone.

From a broader perspective, the environmental factors within and outside of the workplace also affect the overall wellbeing of the individual and should be addressed. The boundaries between work and home life have become blurred, putting added stress on workers. Wellbeing programs need to take into consideration many aspects of the person’s work and home life. They need to help the worker become resilient to be able to handle the demands and pressures of both.

Creating a culture of health within the workforce is paramount to the success of a wellbeing program. Any program or service within a company has to be ingrained in the culture for it to be successful. A wellbeing program needs to be part of the fabric of the business mindset so all employees – especially leaders – embrace the idea of a culture of health.

Resiliency

Resiliency is a newer concept that is gaining attention in workers’ compensation and on the benefit side. It is an important component in workplace wellbeing.

Today’s business climate is more stressful than ever. The pace of work makes it difficult to keep up. The work-life merger adds to it. All of this takes a toll on employees.

The latest trends show:

  • 60% of employees report high stress.
  • The annual cost of stress is $300 billion.
  • One million workers are absent from work every day.
  • 30% of the population has undiagnosed mental health issues.

Resilience teaches employees how to adapt to the changes and stresses of today’s work. While we cannot change the things that happen at work or in our lives, we can learn to change how we react and manage the stress. It is not something we are born with. There are scientifically based teachable skills to help us be more resilient. We can learn to control our thinking and how we react to pressures.

Evaluating the Need for a Wellbeing Program

Every company is different, and it is important when considering a wellbeing program to assess the organization’s needs against the value and impact of any given program. Some companies develop their own internal systems while others use commercial measures. Johnson & Johnson for example, surveys workers annually to determine where each person is on the health spectrum and how satisfied they are with the programs and services offered. The company also has a value system of management to assess the performance and engagement levels of leaders in the various business units.

See also: Wellness Programs Lack Health Literacy  

There are also a variety of tools available on the market to assess the need for wellbeing programs.

  • The Gallup-Sharecare WellBeing Index looks at the key factors that drive greater wellbeing for individuals and populations. It is the world’s largest data set on wellbeing.
  • Employee engagement surveys assess the level of employee engagement in their organizations and their perceptions of management’s involvement.
  • The Centers for Disease Control and Prevention Worksite Health Scorecard designed to assess whether companies have implemented science-based health promotion and protection interventions.
  • The Health Enhancement Research Organization (HERO) Scorecard is designed to focus on best practices for promoting workplace health and wellbeing. It shows what may be missing, the need and what employers can do to build a solid wellbeing program.

Pitney Bowes assesses the needs of its employees by talking to them directly and looking at various data. Feedback sessions, surveys and discussions with various department heads can reveal trends in a company that can be addressed through wellbeing programs. An important point in evaluating the workforce is to look at it holistically, not just a specific injury.

Solutions for Employers

Providing access for employees and their families to well-defined services can be effective in improving the wellbeing of a workforce. For larger corporations, onsite health clinics are ideal for quick issue resolution. They can also provide opportunities for preventive services and access to educational programs.

Access to services for mental and emotional support is another very important service, whether it is through an Employee Assistance Program or an online tool.

Energy management is an up-and-coming area to help with resilience. Companies that utilize it assess the energy level of their employees and provide training to increase their energy.

The number and types of programs that are available can seem overwhelming, but not all programs work for all companies. Employers need to identify those that fit the needs and culture of their own workforce.

One solution that companies are using is called meQuilibrium. Two of our panelists were from the firm, which uses behavioral psychology and neuroscience to help people manage stress. We typically do not include specific vendors in our webinars, but this is one instance where we thought it would be worthwhile.

meQuliibirum is a digital tool powered by data-driven insights that measure and benchmark. It is a skills-based learning product that begins with an assessment to determine how the worker reacts in certain situations, connects with his community, his level of sleep and a host of other issues. The user is then given tools to help him become more resilient.

Measuring Outcomes

Measuring the success of a wellbeing program should take into consideration both the effects on workers and the return on investment for the company. One technique is to look at the four Es: enrollment, engagement, efficacy and experience.

  • Enrollment is first and foremost because a program can’t have a significant impact on the bottom line if only a few employees are involved. Companies that have successful wellbeing enrollment use grassroots methods to spread the word, starting with senior management.
  • Engagement. Once you get workers in the door, keeping them involved is equally important. The percentage of people enrolled in any given month will tell you the level of engagement, as will how long they stay involved. It’s also important to know what elements of the program they are using.
  • Efficacy speaks to the effectiveness of the wellbeing program. Does it deliver what is promised? The best way to measure that is with an employer’s own data. For example, lower use of employee leaves suggests there is an improvement in employees’ resilience.
  • Experience refers to whether and how the program is helping employees. Is it changing their lives? Would they recommend it to their families or friends? Do they have stories about life-changing events due to the program? Those can show the success of the program.

The four Es are also applicable to the workers’ compensation program. Enrollment, for example, could pertain to whether and to what extent an injured worker is engaged with case management. Efficacy is also important because we often do not look at the return on investment (ROI) holistically in workers’ compensation across expense, medical and indemnity buckets. A Net Promoter Score (NPS) in workers’ compensation could be extremely valuable. There is an opportunity to use measurements from the benefits side of an organization to help an employer incorporate them into workers’ compensation so vendors and suppliers have a more consistent way of reporting metrics on the company.

HERO is another excellent way to measure success. This national non-profit organization is focused solely on identifying best practices of workplace and wellbeing to improve the lives of employees and their families. The HERO Scorecard can provide an instant assessment of a company’s wellbeing program compared to others in its database.

From an employer perspective, measuring the ROI of a wellbeing program can be difficult. All the various elements work together to drive improvement for workers, so it is hard to see the overall ROI, but you can look at various metrics. Some numbers may not look significant, but are important. An Employee Assistance Program may only have 3% to 6% of employees involved at any given time, but it is important to those workers using it, so it is important to understand benchmarks.

Other metrics that can be considered are things such as weight loss or other changes that measure benefits of the program. Additional metrics may also help, such as the data for care utilization, claims analysis, participation in wellness programs and lifestyle modification outcomes. There really is no one-size-fits-all way to measure the ROI of these programs, but the more details you can get, the better.

Another way to measure the success of a wellbeing program is to look at its return on value; how much workers are engaged in their work based on their perceptions of the company’s support in helping them be healthy and take care of their families.

The financial success of companies that have invested in health and wellbeing can be measured and is sometimes available in various publications. The American College of Occupational and Environmental Medicine, for example, has published studies showing the stock market performance of companies over time to see if there are differences after wellbeing programs have been implemented.

See also: Employee Wellness Plans’ Code of Conduct  

Challenges to Implementation

Putting a wellbeing program in place can be challenging, but taking a few extra steps will help.

  • Due diligence up front. Especially if you are using a third party, you need to really know what you are implementing. For example, if data is to be exchanged, what data and in what format?
  • Communication. One of the biggest challenges is getting the word out to the people who can benefit from the program. Some companies use various marketing tools such as behavioral economics to spread the word. There should also be some way to motivate people to participate. Monetary incentives are one method.
  • Effectiveness. It is important to monitor and see what is or is not working within the program and be willing to find a different approach, if needed.

Lessons Learned

Despite a company’s best efforts, not every piece of a wellbeing program will meet expectations. You want to make sure you carefully assess whatever you put in place. Something might be perfect for one organization but not work well for another.

Johnson & Johnson had to abandon a nurse line for employees because it just did not work. Pitney Bowes brought biometrics to company sites to make it more convenient for employees to get their blood drawn and get immediate results. But it turned out that method did not lead workers to take action. Instead, the company now pays employees to see a physician to get the same information. The physician can then persuade them to take action.

You have to look at the data and utilization to see if a particular program is valuable or not and be prepared to make adjustments, or even pull the plug entirely on a service, based on those results.

‘Close Enough’ Isn’t Good Enough

Insurers stake their businesses on their ability to accurately price risk when writing policies. For some, faith in their pricing is a point of pride. Take Progressive. The auto insurer is so confident in the accuracy of its pricing that it facilitates comparison shopping for potential customers—making the bet it can afford to lose a policy that another insurer has underpriced, effectively passing off riskier customers to someone else’s business.

There are a number of data points that go into calculating the premium of a typical home or auto insurance policy: the claim history or driving record of the insured; whether there is a security system like a smoke or burglar alarm installed; the make, model and year of the car or construction of the home. Another contributing factor, of course, is location, whether it’s due to an area’s vehicle density or crime statistics or distance of homes from a coastline. Insurers pay close attention to location for these reasons, but the current industry standard methods for determining a location—whether by zip code or street segment data—often substitutes an estimated location for the actual location. In many cases, the gap between the estimated and actual location is small enough to be insignificant, but where it’s not, there’s room for error—and that error can be costly.

Studies conducted by Perr&Knight for Pitney Bowes looked into the gap between the generally used estimated location and a more accurate method for insurers, to find out what impact the difference had on policy premium pricing. The studies found that around 5% of homeowner policies and a portion of auto policies—as many as 10% when looking at zip-code level data—could be priced incorrectly because of imprecise location data. Crucially, the research discovered that the range of incorrect pricing—in both under- and overpriced premiums—could vary significantly. And that opens insurers up to adverse selection, in which they lose less-risky business to better-priced competitors and attract riskier policies with their own underpricing.

Essentially, this report discusses why a “close enough is good enough” approach to location in premium pricing overlooks the importance of accuracy—and opens insurers to underpricing risk and adverse selection.

The first part of this paper discusses the business case for hyper-accurate location data in insurance, before going into more detail on the Perr&Knight research and the implications of its findings, as well as considerations when improving location data. It concludes with a few key takeaways for insurers going forward. We hope you find it constructive and a good starting point for your own discussions.

The Business Case for Better Location Data

Precise location data helps insurers realize increased profits by minimizing risk in underwriting, thereby reducing underpricing in policies. These factors work together to improve the overall health of the insurer’s portfolio.

“The basic, common sense principle is that it’s really hard to determine the risk on a property you’re insuring if you don’t know where that is,” says Mike Hofert, managing director of insurance solutions at Pitney Bowes. “Really, the key question is, how precisely do you need to know where it is? If you’re within a few miles, is that close enough?”

While most of the time, Hofert says, the answer might be yes—especially for homes in major hurricane, landslide or wildfire zones, because those homes all have a similar location-based risk profile—it’s not always the case. Where it’s not, imprecise location data can have costly consequences. “There are instances where being off by a little bit geographically turns into a big dollar impact,” he says.

See also: Competing in an Age of Data Symmetry  

Currently, industry standard location data for homeowner policies rely typically on interpolated street data. That means that streets will be split into segments of varying length, and homes within that segment are priced at the same risk. However, explains Jay Gentry, insurance practice director at Pitney Bowes, the more precise method is to use latitude and longitude measured in the center of the parcel, where the house is. That can be a difference of a few feet from the segment, or it can be a difference of 500 feet, a mile or more. “It just depends on how good the [segment] data is,” Gentry says.

And that flows into pricing, because when underwriters can more accurately assess the risk of a location—whether it’s where a home is located or where a car is garaged—policies can be priced according to the risk that location actually represents.

It’s tempting to look at the portion of underpriced policies and assume that they’re zeroed out by the overpriced policies an insurer is carrying, but Gentry says that’s the wrong way to look at it—it’s not a “zero sum” game. “If you really start peeling back the layers on that, the issue is that—over a period of time—it rots out the validity of the business,” he says. “If you have an over- and underpriced scenario, the chances are that you’re going to write a lot more underpriced business.”

A key point here is reducing underpricing, because, when the underlying data leads to policies that are priced at a lower rate than they should be, not only does it open an insurer up to paying out on a policy it hasn’t received adequate premiums for, but underpriced policies may also end up constituting a larger and larger portion of the overall book. This is essentially adverse selection.

Michael Reilly, managing director at Accenture, explains that if the underlying pricing assumptions are off, then a certain percentage of new policies will be mispriced, whether at too high or too low a rate. “The ones that are overpriced, I’m not going to get,” he says, explaining that the overpriced submissions will find an insurer that more accurately prices at a lower rate. “The ones that are underpriced, I’m going to continue to get and so, over time, I am continuing to make my book worse,” he says. “Because I’m against competitors who know how that [policy] should be priced correctly, my book will start to erode.”

And, if that policy is seriously underpriced, losses could easily outweigh all else. Gentry recalls the example of an insurer covering a restaurant destroyed in the Tennessee wildfires in 2016, which it had underpriced due to an inaccurate understanding of that location’s susceptibility to wildfire. “The entire block was wiped out by the wildfire, and [the insurer] had a $9 million claim that they will never recoup the loss on, based upon the premiums.”

The Value of Precision

Perr&Knight is an actuarial consulting and insurance operations solutions firm, assisting insurers with a range of activities including systems and data reporting, product development and regulatory compliance. It also commonly carries out research in the insurance space, and Pitney Bowes contracted it to conduct a comparison of home and auto policy pricing with industry-standard location data and its Master Location Data set. We spoke with principal and consulting actuary Dee Dee Mays to understand how the research was conducted and what it found. The following conversation has been edited for clarity and length:

How was each study carried out and what kinds of things were you looking to find?

On the homeowners’ side, we looked at the geo-coding application versus the master location data application. And on the personal auto side, we looked at three older versions that are called INT, Zip4 and Zip5, and we compared those results with the master location data result.

In both cases, we selected one insurance company in one state—a large writer—and had Pitney Bowes provide us with all of the locations in the state. For homeowners, they provided us with a database of single-family, detached home addresses and which territory each geo-coding application would put the address in. They provided us with that database and then we calculated what the premiums would be based on those results and how different they would be, given the different territory that was defined.

For both cases, we picked a typical policy, and we used that one policy to say, “Okay, if that policy was written for all these different houses, or for a vehicle with all these different addresses, how much would the premium differ for that one policy under the various systems?”

And what did you find?

What we found [for homeowners] was there were 5.7% that had a change in territory. So, almost 94% had no change under the two systems. It’s coming down to the 5% that do change.

I think that what is more telling is the range of changes. The premium could, under the master location data, either go up 87%, or it could go down 46%. You can see that there’s a big possibility for a big change in premiums, and I would say that the key is, if your premium is not priced correctly, if your price is too high compared with what an accurate location would give you, you are probably not going to write that risk. [If] someone else was able to write it with a more accurate location and charge a lower premium, the policyholder would say, “Well, I want to go with this lower premium.”

See also: Location, Location, Location – It Matters in Insurance, Too

So, you’re not going to get the premium that’s too high, but if you’re using inaccurate location and you come up with a lower premium than an insurer that was using accurate location, you are more likely to write that policyholder.

The studies were conducted based on policies for homeowners in Florida and vehicle owners in Ohio; so what kind of conclusions can we draw about policies in other states?

I think it really depends on what the individual insurance company is using to price its policies. One [example] is that it’s now more common in states like California, Arizona, even Nevada, for companies to have wildfire surcharges—and they determine that based on the location of the property. So it’s definitely applicable in another state like that, because any time you’re using location to determine where the property is and you have rating factors based on the location, you have the potential that more-accurate data will give you a better price for the risk that you’re taking.

Putting a Plan in Place

Michael Reilly works at Accenture with the insurance industry and advises on underwriting regarding pricing efficiencies; he also works with Pitney Bowes to educate insurers about location data and its potential to affect accuracy of premium pricing. We talked to him about Perr&Knight’s findings and the impact that more precise location data can have on pricing. The following conversation has been edited for clarity and length:

Given the finding that more than 5% of policies can be priced incorrectly due to location, what’s the potential business impact for insurers?

It’s a very powerful element in the industry when your pricing is more accurate, when you know that you’ve priced appropriately for the risk that you have. And when there’s this leakage that’s in here, you’ve got to recognize that the leakage isn’t just affecting the 5% to 6% of policies. That leakage, where they’re underpriced, has to be made up from an actuarial discipline. So that underwriting leakage is actually spread as a few more dollars on every other policy that’s in the account. That jacks up all their pricing just a little bit, and it makes them a little bit less competitive. If their pricing is more accurate, that improves the overall quality of their book and improves their ability to offer better pricing throughout their book.

What are some of the reasons insurers have been slow to act on improving location data?

I think it’s coming from multiple elements. With anything like this, it’s not always a simple thing. One thing is, there are carriers that don’t realize it, don’t realize there is an opportunity for better location [data] and how much that better location [could] actually contribute to their pricing. The second is—and part of the reason there’s a lack-of-awareness issue—is that the lack of awareness is twofold, because it’s also a lack of awareness by the business. Typically, data purchases are handled either by procurement or by IT, and the business doesn’t think about the imprecisions they have in their data. They just trust that the data they get from their geolocation vendor is good, and they move on with life.

The other piece about this is the fact that replacing a geospatial location is not [a matter of] taking one vendor [out] and plugging in a new one, right? We do have all these policies that are on the books, and I’ve got to figure out how do I handle that pricing disruption so I don’t lose customers that are underpriced. I want to manage them through it. I need to look at how I’m pricing out, and actually look it up and look in my file. Do I have to refile because I have a change in rate structure, or does my filing cover the fact that I replaced it with an accurate system? So, I need to look at a couple different things in order to get to where I’d be in the right price.

And then, quite frankly, once they open the covers of this, it also starts to raise other questions of, “Oh, wait a second.” If this data element is wrong or this data element can be better, which other data elements can be improved; or what new data elements can be considered? Could the fire protection score be changed, or average drive speed be used? That’s why we’re starting to talk to carriers and say we might as well look for the other areas of opportunity, as well, because we probably have more leakage from just this. This is the tip. It’s very easily identifiable, very easily measurable, but it’s probably not the only source of leakage within your current pricing.

See also: 10 Trends on Big Data, Advanced Analytics  

What we’re trying to help [insurers] do is say, look, if you’re going to purchase this new data, let’s make sure that we have a plan on how we’re going to get in and start to achieve the value relatively quickly. In most cases, if it’s a decent-sized carrier, we know they’re issuing X number of wrong quotes per day because of not having the right location information. So how do we fix this as fast as possible, so we’re not continuing to make the problem worse?

And when you say realizing value quickly, what would be a typical timeline?

There are a couple of elements that will come into play. If someone has to do a refiling, the refiling itself will take a period of time. Assuming they don’t have to do a refiling—and not in all cases will they need to—and depending upon their technology, if they can immediately switch geolocations for new business post-renewals, then you can do that in a very, very short window. At least start to make sure that all new quotes are priced correctly.

Then the question comes in as to how do you want to handle renewals? Whether you want to spread the pricing increase over one year or two years or along those lines? That usually takes a little bit more time to implement within a system, but probably not a significantly long period of time—only a couple of months and then a year to run through your entire book to fully realize the value. Now, if you have to do a filing, all that could be delayed by X number of months.

Key Considerations

Given that location has a material impact on premium pricing, the onus is on insurers to have the most accurate location data available. Those that do will have a competitive advantage over those that don’t. Keep in mind the following considerations:

  • “Close enough” is not always good enough. Even though location is close enough most of the time, imprecision can have big costs when it masks proximity to hazards.
  • The portion of policies affected may be small, but it can have big cost impacts. The range of under- and overpricing varied widely, with some premium pricing off by more than $2,000. And, as Michael Reilly points out, the impact of underwriting leakage is actuarially spread across the entire portfolio, making premiums incrementally less competitive.
  • Underpricing is not “zeroed out” by overpricing. In fact, underpricing opens insurers to adverse selection, in which overpriced policies are lost to more accurately priced competitors, and underpriced policies make up a greater proportion of the business.
  • Time to value can be quick – and new ratings filings are not always needed.

You can download the full report here.