Property inspections are a critical step in the insurance underwriting workflow. Confirming what underwriters know about a property while discovering unknown characteristics is vital to underwriting. However, for several reasons, the current process and techniques used to collect information for an inspection aren’t ideal.
First, property inspections are costly. A typical drive-by inspection costs insurers about $25, while a full interior inspection typically is at least $150. All told, insurers spend about $100 million each year on property inspections. Is there a way to trim that expense?
Second, inspection reports take a long time to complete. The process of ordering an inspection from a third-party vendor, scheduling the inspection, completing the inspection, writing the report, reviewing and approving the report, and submitting it back to the insurer usually takes about three weeks. While that’s still within the 60-day postbind period, wouldn’t it be better for insurers — and, more important, for policyholders — to know immediately if the insurer will underwrite the property?
Third, inspections often only confirm the underwriting decision. A recent survey by Verisk Analytics determined that most inspections result in no underwriting action. Are there other, less expensive ways to collect or validate the information an underwriter needs?
Yes. You can implement a system to determine which properties need inspection and by what method. There are dozens of property and policyholder data elements that, when combined, provide a clear image of the risk and the need for some type of inspection. Then, when an inspection is necessary, you can turn to alternative inspection methods that are comprehensive, quick, nonintrusive, and economical. We’ll be discussing those alternative inspection methods in this article.
First-generation virtual inspections
One alternative inspection method is the relatively new concept of the “virtual inspection,” which can replace the common drive-by photo inspection. Virtual inspections use overhead and oblique views of the property captured through aerial imagery. Some systems (including Verisk’s 360Virtual Inspection™) also use measuring tools to help confirm details like square footage of the structure, size of the roof, distance to hazards, property boundaries, and more. Images are available from a variety of providers; and in the case of Google and Bing, they’re free. (However, licenses are typically required to use images for business purposes.)
Today’s first generation of virtual inspection technology is a game changer, bringing an entirely new concept to the inspection process. Using a variety of property images, underwriters and loss control professionals can confirm location, review exterior property characteristics to validate the replacement cost estimate, and identify items such as pools, trampolines, and proximity to other properties to discover conditional hazards.
While virtual inspections provide value today, the technology hasn’t yet gained acceptance for two primary reasons.
- In most cases, image quality isn’t sufficient to capture the finer details of a property. For example, most images lack the resolution needed to determine the material covering of the roof and identify an air-conditioning unit or similar details.
- Trained staff still need to analyze aerial images to get the information necessary to satisfy inspection requirements.
Disruptive technology requires a new way of thinking
As with all new disruptive technology, first-generation solutions spur a shift in conventional thinking. As the technology improves, adoption grows and becomes the norm over time. Recall the classic scene from the movie Wall Street when Gordon Gekko (played by Michael Douglas) is walking down the beach talking on a mobile phone the size of a brick. With the release of Wall Street in 1987, the concept of using a phone at the beach was forward thinking, but the technology was primitive. Today, it’s the norm and just one of hundreds of things people can do at the beach with their phone — and arguably the least innovative and interesting.
It’s important to think of the first generation of virtual inspections in much the same way as the advent of the mobile phone. Fortunately, the technology behind early virtual inspections is already years beyond the first-generation mobile phone, so the innovation curve will be much faster than the 20-year span from the first mobile phone to the smartphone. In fact, it may be much sooner than you think.
In the near future, image quality will reach the point where the finest detail of a property’s exterior will be visible, including roof material, gutters, siding, and more. That will facilitate a view into the property never before seen, resulting in the inspection insight you need to support underwriting decisions. Property parcel information, claim loss histories, real estate appraisals, replacement cost estimates, floor plans, and more will be available with a simple click of the mouse. Further down the line, technology will even be able to glean insights about the interior of the property.
The challenge for insurers is to rethink the exterior property inspection process. Changing years of standard operating procedure isn’t a trivial matter, and a shift away from drive-by inspections requires trusting automated rather than human analysis for decision making.
However, as image quality and automation improve, a virtual inspection will instantly be able to capture more information than a drive-by property inspection can gather in three weeks — clearly showing the benefits of virtual inspections as a viable alternative for property inspections.
Scott Amussen is vice president of property products for Verisk Insurance Solutions – Underwriting. He was an assistant vice president with Xactware’s 360Value®. He has a computer science degree from Brigham Young University and an M.B.A from the University of Utah.
Verisk Underwriting will release its next-generation virtual inspection technology in the fall of 2014. The new technology relies on data analysis from Xactware’s Property InSight™ and is based on proprietary ultra-high-resolution aerial images captured exclusively for use by Xactware and Verisk. In fact, it’s inaccurate to call the technology a virtual inspection. There’s nothing virtual about it. It’s based on real, crystal-clear images showing the finest property details to facilitate instant analysis and provide the data necessary for an effective, intelligent property inspection.