Next year could be shaping up to be a challenging year for home insurers. While consumers in areas at high risk of flooding could be set to see their insurance costs fall, there have also been predictions that higher subsidence claims and extreme weather will create losses for UK home insurers, putting pressure on premiums. Bad weather insurance claims rocketed by 290% in the first quarter of this year.
Storm Callum in October showed that significant advances have been made in the way insurance providers deploy their supply chain to handle flood claims, with improved customer communication processes and a focus on more resilient repairs. But alongside these developments, data can help home insurance providers storm-proof their book of business against all kinds of threats.
Verified data for right first time quotes
Prefilling some of the application information for customers pulling data from external data sets can both speed the process and improve the accuracy of the information used for underwriting risks. The net result is reduced administrative costs, pricing based on a clearer view of the risk and increased confidence amongst customers around the process of securing cover. Let’s not forget, some home insurance applications require customers to answer up to 70 questions.
This is a quick win; consumers like the idea of prefilled information in the home insurance application process with eight out of ten in our LexisNexis survey* saying it would make the process a lot easier. Given that 68% of homeowners said they believe it is acceptable to omit or adjust information in their application to keep their insurance premiums low, and 25% said they believe that their claim should be covered even if the information they provided when they applied was not completely accurate, prefill can protect both insurer and customer.
A home prefill solution means customers just need to validate their personal data, including their addresses. Then key elements of property information will automatically drop into the insurance application. All they need to do is confirm those details are correct.
The home insurance sector has just started on the prefill journey, but there is massive potential to extend the data used in prefill to include building data, previous insurance policy information and prior claims information.
The more data available, the more streamlined the customer journey and more accurate the data used for pricing. Prefill also helps tackle the huge problem of un-insurance and underinsurance. According to the ABI, 28% of homes have no home insurance in the UK and 6.8 million UK homes are under-insured, equivalent to 25% of all households. There is a big protection gap that household insurance providers have an opportunity to fill.
Plan for typical winter weather-related claims
Typically, the top winter weather-related claims are attributable to:
- Water (roof damage from snow melt)
- Fire (from heaters, kitchens and fireplaces)
- Freeze (leading to frozen pipes)
- Wind (damaged roofs).
When pricing, home insurance providers need to assess the likelihood of all perils occurring in a customer’s area. While some home insurance providers rely on a somewhat broad-brush postcode-level flood risk analysis, a property-level assessment is far more accurate.
Flood risk for example, can vary dramatically within short distances so gaining that more granular view of the risk will help ensure the right premium is charged for the risk.
Connect to protect
We have seen insurtechs such as Neos and Roost using connected devices to alert homeowners to smoke and water leaks to help reduce losses. The most recent example can be seen in the US with Amazon partnering with Travelers to offer smart home kits. Customers using the kits may then be eligible for home insurance discounts.
This market is in its infancy but has massive potential once consumer adoption picks up. Innovations in smart home technology also create the opportunity for connected home data to be used in risk pricing across the market as a whole, but there are some hurdles to cross before this can become a reality.
Be competitive, but protected
As severe losses can result in rate increases, customers may be inspired to shop around at renewal. The dual pricing challenges in the market have helped promote this shopping behaviour.
Insurance providers need to understand the fullest picture of risk for both existing and new customers to price competitively and retain those customers who are identified as being most valuable to the business.
Using a combination of customer, public and contributory data can help build a far more detailed picture of risk than could be achieved simply using their own customer data.
The power of reciprocity
Ultimately, in order to gain both an accumulated and granular view of risk, key risk data needs to be aggregated across five data sources: property, place, people, policy history and past claims. This will provide a holistic view of risk enabling insurance providers to prepare themselves for potential claims in all types of weather.
In our research*, 63% of the home insurance providers we surveyed said it would be helpful to use a contributory database of property information, along with 56% who said past policy information would be helpful.
The ideal future is contributory home insurance databases accessed by the industry to help insurance providers gain a holistic view of risk. Insurance providers will be able to enhance risk assessment at point of quote, calculating more accurately for potential weather losses and in return, consumers would potentially receive further competitive pricing more personalised to them.
*LexisNexis Risk Solutions carried out an anonymous survey, the UK Home Insurers Study, 14 November – 13 December 2017. Data collection: A mixed mode of web and telephone survey was used to collect data. To qualify, respondents were screened to meet the following criteria: Currently employed in the insurance industry (direct insurers, indirect insurers, brokers, and MGAs) with responsibilities related to underwriting or pricing. The sample was 77 home insurers who spend at least 30% of their time working in the personal home insurance sector.
For more insights from LexisNexis Risk Solutions research, download the LexisNexis Risk Solutions white paper ‘Promise and Potential: How Data and Analytics are Shaping the UK Home Insurance Market’.