An accident or catastrophe brings the moment of truth between a carrier and a policyholder. All too often, it's the only interaction between the two parties. The result is a relationship vulnerable to unwanted surprises.For example, a policyholder suffering a loss because of a fire may find a policy failed to cover enough of the current value of the property to make it whole again. Years of appreciation as well room additions and remodeling may not have been updated in the policy.
To avoid such nasty surprises, -which can lead to lawsuits or even state regulatory action, carriers are increasingly turning to insurance-to-value (ITV) tools to employ technology, supplemented by data mining, to capture accurate valuations for the claims management process. ITV tools promise to increase the accuracy of underwriting valuations and enable carriers to take a proactive role in the valuation. Such tools can regularly track and adjust valuations as markets change, reflecting rates down to the ZIP code level.
To a large degree, those tools are having the desired effect, observers say. In its most recent reports of undervaluation in housing properties, Los Angeles-based Marshall & Swift/Boeckh (MS/B) estimates that 58% of the residential housing stock in the United States is undervalued for insurance purposes by an estimated 21%. That's down significantly from 2000, when MS/B calculates that 73% of properties were undervalued at an average rate of 35%. MS/B attributes part of the shift to the tools and part to other best practices.
NEW FRONT ENDS
Besides proving their mettle in the claims management process, ITV tools can also deliver at the front end and renewal phases of the process, as well as in underwriting, to help with valuation determinations. Some carriers may be getting the message that such solutions can be useful across the entire enterprise, not only for claims administrators but also for underwriting departments.
Increasingly, such tools are Web-based and therefore accessible via portal through a standard Internet browser. That enables collaboration and transparency of information with all parties across the enterprise to communicate changes in valuations and increase understanding of what levels of coverage are in place.
"Carriers are spending more money on updating and actually putting in new claims systems, new back-end systems, than they have probably in the last 50 years," says Anthony Hetchler, vice president of claims for MS/B. "That's driving a lot of this collaboration. Up to this point, the systems have been very clunky, old mainframe-based applications-very difficult to modify, very difficult to share information. The new platforms that they are building and installing are actually breaking down those barriers, and it's catching fire very quickly. The No. 1 initiative among executives on the underwriting and claims side is better access to meaningful business intelligence."
Such across-the-enterprise integration of ITV capabilities has been put into place at Bunker Hill Insurance Co., which has headquarters in Boston, Mass. Bunker Hill employs HomeValue from Jersey City, N.J.-based ISO, the Insurance Services Office, to provide valuations on policyholders' homes.
"Every risk goes through a HomeValue evaluation before we write it," says John Tierney, president of Bunker Hill. He notes that his company coordinates the ITV tool with front-end policy entry systems.
Tierney observes that the ITV tool plays a key role in three phases of the process. "The first is in writing a new business application," he says. "It has to be run on every risk when we're doing a new business application-to verify eligibility."
Next, Tierney continues, "it's a tool that we use when doing inspections on new business. When we go to the house, and have all the home value information in front of us, it makes inspections much more efficient for the inspector since he already has the information before he shows up."
Finally, Tierney says, the tool is employed within Bunker Hill's claims department. "Any time we have a claim, the claims adjuster gets a copy of the latest home value report for that house," he says.
While Bunker Hill is seeing positive results from its ITV integration, industry observers are divided as to how closely underwriters and claims departments will be collaborating with the same applications and data. Vendors may be enthusiastic about the possibilities such integration represents, but analysts are skeptical.
Jim Fini, CTO of Enservio Inc., Natick, Mass., which sells services and software addressing home content insurance, says he's seeing growing interest from the underwriting side of carrier organizations.
"We're now talking to underwriters as well, because they're exploring how they can write better policies based on all the data being collected." MS/B's Hetchler also sees increasing integration between carriers' departments. "The market is starting to shift," he said. "For the first time probably in the history of claims and underwriting, those divisions are doing a better job of communicating. For years, they were very siloed. Claims stuck to claims, underwriting stuck to underwriting."
Hetchler recently assisted the underwriting department of one carrier in employing ITV technology to dive into claims records of homes built before the 1940s to assess differentiation in construction costs. "They wanted to know if pre-1940s construction cost more than regular construction when a claim occurred," he says. "We determined this by matching claims data to the underwriting records to get the property characteristics and identify pre-1940s homes, then analyzing against a control group with post-1940s homes."
Hetchler says he was able to perform that analysis "because that particular carrier recognized the value in sharing that information. The barriers between claims and underwriting are starting to break down."
BACKGROUND MUSIC?
However, analysts say underwriting and claims have different roles-something likely to continue, as it is in the nature of the business. "ITV, in a sense, is just part of the background music," says Donald Light, analyst with Boston-based Celent LLC. Light agrees that ITV tools can reduce the risk of undervaluation but says claims has little control over the process.
"Whatever has happened in ITV, both in terms of the insurance policy and whether the insurance company and or the policyholder have done what they ought to have done, becomes an input passed onto claims. Claims then adjusts the loss that occurred," says Light.
Often, the two departments have two differing purposes, according to Clint Harris, analyst with Conning Research and Consulting Inc., Hartford, Conn.
"Underwriting and claims are both using insurance to value tools for similar but somewhat different reasons," Harris says. "Underwriters are looking for an understanding of what their exposure is-to verify that the limits are within a good co-insurance piece, and that they're trying to keep up with inflation."
In fact, because ITV tools tend to be detail oriented, they may add too much of a processing load at the initial stages of a policy application process. Harris warns that having underwriting and claims using exactly the same applications "becomes a little cumbersome because of the amount of information that is available. Some ITV estimators are pretty complex, and they require a lot of data input in order for them to work in an efficient or accurate way. So it becomes an issue with how much time can be devoted to it and how much information that you do have that can go into it."
However, Enservio's Fini says the disconnect between underwriting and claims in that regard "has been something of a dirty secret in the industry. The information loop between claims and underwriting is broken in some areas." Ultimately, the data-no matter how complex-needs to be shared and accessible across the carrier's entire enterprise.
"Insurers should be, and are, prodigious collectors of data," Fini opines. "Nothing is too mundane for an insurance carrier to collect. Who knows what the predictor of risk is going to be. If you're not collecting your claims data, then you're shooting in the dark. You're working off of models and mathematical algorithms to try to predict hurricane cycles of loss cycles for various perils. But that's pure conjecture if you're not really marrying that up with your claims experience. The big challenge is to connect all those dots."
