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Insurers embracing by-peril rating structures, predictive analytics

Four years ago, ISO introduced its first by-peril ratemaking products to the U.S. homeowners insurance market. The goal was to provide insurers with an improved method for developing rating structures that more closely reflect actual risk.

Today, 82 percent of larger insurers that participated in a recent survey we conducted with Earnix are using by-peril rating structures for homeowners. (Larger insurers are those with more than $500 million in gross written premium.) Of all insurers still using all perils combined in their rating, 26 percent plan to move to by-peril rating within the next year and 40 percent plan to do so within the next two to three years.

Plan to incorporate by-peril rating into the rating structure

Chart: Homeowners insurer plans to use by-peril rating

I’d like to say the growth is a result of ISO’s efforts. But the reality is that it’s more organic: Insurers see by-peril rating as a way to rate and price policies more precisely and increase their market share. Those same goals are motivating insurers to use predictive analytics. The survey found that 57 percent of respondents use predictive modeling for homeowners loss cost development.

For years, insurers have relied on personal auto lines to meet their annual goals. But as that market continues to become more competitive, they’re looking to homeowners as an area for growth.

Over the past four years, we’ve been enhancing our predictive analytics tool, ISO Risk Analyzer® Homeowners, which examines hundreds of indicators that can affect homeowners risks and predicts expected losses by peril at the policy level.

Learn more about our rating and predictive modeling tools.

Learn more about our alternate Homeowners By-Peril Rating Supplement offered at no charge to participating customers.

David Cummings

David Cummings, senior vice president and actuary for personal lines, ISO Insurance Programs and Analytic Services, is responsible for ISO’s personal lines insurance programs. He leads ISO’s initiatives to enhance its offerings through analytics and predictive modeling across all lines of insurance.

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