Accurate risk information: A challenge for commercial property insurance portfoliosBy Sanford Brown | June 9, 2015
There are millions of commercial properties in the United States, and insurance underwriters acquire information on them from multiple channels and sources to assess risk. Unfortunately, not all the data is precise. In fact, a significant amount is incorrect. At Verisk, our field analysts verify information to give our clients more certainty about the quality of their books of business.
In 2014, a Verisk client contacted us to assess the quality of the information supporting their book of business. They had concerns about the accuracy of their information, particularly regarding square footage of properties they insured. They also questioned whether the construction classes were correct. The Verisk commercial property team performed a portfolio assessment on their data, and our client was alarmed by the results. Thirty-five percent of the policies had incorrect construction classes. Their book had numerous properties listed as Construction Class 6 (Fire Resistive) when our field analysts verified the properties as Construction Class 1 (Frame).
Here are some of the other highlights from the portfolio assessment. Of the client’s policies:
- 91 percent had incorrect year-built information
- 71 percent had incorrect square footage
- 39 percent received unwarranted sprinkler credit
- 33 percent had an incorrect Public Protection Classification (PPC™)
The client’s concerns regarding data quality were well founded. Incorrect records can cause issues for accurate underwriting and skew the estimated replacement cost, which in turn can affect the risk exposure calculation. The client’s natural catastrophe aggregate model could benefit greatly by having accurate secondary risk characteristics available for modeling. Our analysis indicated that premium leakage due to incorrect data was 2.5 percent of the portfolio premium. The incorrect data also created situations of underestimated exposure. Once the client received our assessment, they instituted a plan with Verisk’s commercial property consultants to correct the data and increase confidence in their book of business.