The ways in which insurers assess commercial property risk and respond to claims are constantly being refined. Many new technologies and datasets are not only deepening our understanding of exposures but also allowing insurers to make much more accurate and informed decisions without much effort required.
While there is an abundance of residential property data that can provide insurers with all kinds of useful information about the building’s characteristics, rebuild values, and exposure to perils, commercial property is often fraught with complexities and nuance that can make it much harder to carry out accurate risk assessments.
From small family-owned shops to large factories or commercial office space, the insurance requirements of each business can vary significantly, and it’s crucial that underwriters are using the more sophisticated datasets and tools to capture the risks associated not only with commercial buildings and their associated perils exposure, but their business activities, other site addresses, management insights, credit scores, and other financial data. Here are five examples of how commercial property data is becoming more sophisticated.
Many insurers are increasingly relying on third-party data to enhance their underwriting decisions.
1. Address-level data
The postcode of a property has long been used by the insurance industry to gain a general understanding of the number of claims in that particular area, the building’s exposure to weather-related perils or crime, and any other risk factors that could be surmised from that general area.
While there is clear value in using postcode-level data, some underwriters may feel it is not as accurate or relevant as they would like. This can be especially true for commercial properties, where a particular postcode may be densely populated with commercial lots that bear few similarities in terms of the building type or its exposure to perils. Certain properties may be more prone to burst pipe claims than another, or another group of properties may be more exposed to fire.
Address-level data provides both insurers and their customers with something that feels more like a bespoke service. For major insurance perils such as flood, theft, or fire, as well as individual property details, an insurer’s ability to measure risk and price accurately is vastly improved by having access to address-level data.
2. Regularly updated rebuild values
Depending on when a policy was taken out, the cost of materials and labour required in the event of an insurance claim may have changed drastically. Brexit, the cost of the COVID-19 pandemic, and other inflationary pressures have made the goods and services involved in repairing or replacing property damage or loss more expensive in many cases.
The implication of these increased costs is that many commercial properties – which are often insured based on their market value – are no longer insured to their true value and likely do not have the appropriate cover at the point of claim.
Ideally, replacement costs should quantify both a property’s attributes and the building components needed for rebuild, factoring in the pricing for labour, materials, contractor overhead and profit. Calculating these costs can be challenging, which is why many insurers are now relying on external data sources that can help provide this information rapidly.
3. Building use and occupancy type
Whether you are insuring an office building, a warehouse, a petrol station or any kind of recreational building, having an understanding of what the intended use of a property is can help underwriters understand how the building may have been constructed and what materials were used.
Industrial classifications (for example the Standard Industrial Classification) can give insurers an idea of the typical features within the building, for example if it has a lot of walls, more kitchens, or more utility rooms. While an office building will have many interior walls, a large warehouse will likely have very few. A storage warehouse is also likely to have lower quality materials used and less sophisticated methods of construction than an office block.
When underwriting commercial buildings, occupancy information is critical as it can be indicative of the types of activity that happen in the building, the number of people in the building, and the type of contents stored within, for example machinery or chemicals.
4. Firmographics, management, financials, credit scores
When insuring a company, underwriters need to understand not just the building they reside in but how well the business is managed relative to its peers.
Many aspects of a company’s management such as its credit score, financials, directorship, and any past adverse events, can be indicative of how exposed it is to commercial liability risk. Not understanding the true nature of a business and how well it is managed could have huge consequences for commercial underwriters.
One of the challenges in obtaining this data is that without third-party data, it can take a lot of time and effort in researching the business associated with any commercial lot, along with their activities, their financial health, and how well they are managed. Thankfully, it is now much easier to obtain this information without the need to extend the underwriting questions set.
5. Real-time data at the point of quote
Time and resource constraints are the two major challenges underwriters face when assessing risk. Insurers are already under enormous pressure in this competitive market to provide customers with cover decisions that are quick but also tailored to their individual needs.
Many insurers are increasingly relying on third-party data to enhance their underwriting decisions, speed up the application process, and to help validate information provided to them by customers.
When this data is offered in real time and can be prefilled during the quotation process, insurers are able to not only offer much more competitive pricing but they can process a higher volume of customers while still offering a high quality service.
Having to rely on multiple providers and systems can make the process of managing all these third-party data sources a bit overwhelming – a challenge Verisk has addressed with its Data Insight Hub.
If you would like to find out more about some the ways Verisk is enhancing the tools and data available to commercial property underwriters, please do not hesitate to get in touch.