All you need is a few clicks, in order to change a company’s address at the UK government registry Companies House. As long as you are paying your dues, it doesn’t matter whether you operate in Leeds or in a boat on the River Thames. In fact, because part of the record is public, most small companies choose to use their accountant’s address to register, with a different one for correspondence or actual trading.
But when it comes to resolving the risk of a business, based on factors around their location, this often leaves something of a problem for the insurance industry. A complete and accurate business name and address is vital to allow for data enrichment to be correctly attributed further downstream in the workflow.
How do you assess the insurance needs of a small or medium-size enterprise (SME), if you cannot even get an accurate location for it? Or if the self-declared address from the policyholder is ambiguous, if the office address differs from the main place of business, or if the address doesn’t follow a known format?
How can you price the property’s risks, if you don’t know where it is, or its surroundings? These kind of questions, around normalization of data, the data gaps, and using verified data at the point of quote, contribute to an alarming fact: about 70% of SMEs in the UK are under-insured, according to recent estimates.
Another UK study showed that one in five SMEs aren’t confident that they have the right level of insurance in place. Unfortunately for a small business, if you are either intentionally or unintentionally under-insured by, for example 50%, then your provider will only pay out 50% of the value of the claim. This is known as the ‘average clause’ and can be a very costly mistake for an SME.
We recently discussed at length the issues arising from this information gap at an industry roundtable ‘SMEs–Insuring a Small to Medium Sized Enterprise, organised by Modern Insurance magazine and LexisNexis Risk Solutions.
There is a gap between the SME data that’s collected in the market and what gets into the rating engines and goes to re-insurance in the UK. There is in effect a whole process flow that is not working well.
In cases where do not have the proper business name and full address, you will find that it’s simply not possible to bring in any of the rich business data that’s available. As a result, you will not be able to do property rebuilding calculations, or process claims in a speedy manner, for instance.
Such data verification and data normalization challenges are typical of the issues we at LexisNexis Risk Solutions have helped solve for UK motor insurance for example, preparing raw data so it is ready for the insurance workflow.
It’s understandable that business owners may be reluctant to give out a full address, just to find themselves placed in a high-crime or flood zone by an insurance company. These are the same quote manipulation tactics that insurance providers face for motor insurance underwriting.
But if the industry spent more time and energy on getting the best address possible, whether by using a smartphone at the location to get the coordinates and pass that through the chain, it will make the market just work so much better. The reinsurance costs will come down, with all sorts of knock-on effects, ultimately benefiting the SME with more accurate premiums, more useful risk assessment, and usually, lower premiums.
There is a need to educate the market on the issue of providing a full, accurate address. In the past, business addresses were not that important because data enrichment did not exist.
Nowadays, there is certain basic information that we need for data enrichment, in order to make good use of this technology. Otherwise there is going to be a continuation of errors that require a manual intervention, with often mis-pricing, and just bad data that will perpetuated in the record of the customer.
In our roundtable with Modern Insurance there was a broad discussion on how technology and the smartphone is coming to help address this challenge, for example with geo-tagging the location of a property or claim.
Improving data use for the customer
This whole discussion on data standards and data verification touched on the interests of all the insurers and brokers taking part in our roundtable.
The speakers agreed more needs to be done to solve this challenge. As one leading insurer commented: “There is a level of transparency we should really be thinking about now as an industry, that we should be bringing up to the customer. There will be the debate about what you can and cannot share. But we should be looking at how to do that breakdown for the customer, so it is really clear, the policyholder understands the assumptions that have been made, and they have the chance to challenge them as well.”
As another speaker described it: “I think that brokers and insurers need to work together for the collective good of their client….We need to try to break that model where the relationship between the client, the broker and the insurer is like an old-fashion value chain and it is transactional. It is not an ecosystem but it is the start of that collaboration among those three partners that will help us build trust.”
Both brokers and insurers are keen on having more data available, and the greater granularity that comes with that. If it may not be possible to price a risk or to accept a given risk in the first instance, and you are now able to use data to offer a price, isn’t that a positive outcome to customers?
The need for a common database
Data flow is unbelievably complex in the UK insurance market and especially so in commercial insurance because it is highly intermediated. That makes it very difficult to have common pricing strategies for any individual player across the whole market.
The industry is using postcodes and free-text address fields which will lead to errors or no data enrichment, which may result in unfairly pricing the risk, as insufficient data is available.
Ultimately it all comes back to the customer’s interest. Automated pre-fill services to improve business name and address capture are available, and ideally can be adopted by those providing online quotation services, or in the software house world, to help brokers capture the right business name and address. Without changes to the way addresses are captured, the role of data enrichment won’t reach its full potential. Opportunities to serve customers better will continue to be lost.
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