Eye in the Sky: The New Vision of Underwriting

By Neil Spector

The process for underwriting homeowners insurance policies has come a long way in a short time. It wasn't long ago when a local insurance agent would have to personally visit a property, assess the homeowner's needs, and evaluate the risks associated with a property before issuing a new insurance policy.

Agent visits still happen today but are more the exception rather than the norm. In fact, the practice will continue to fade as more and more homeowners turn to the web or their smartphones for property insurance coverage. The elimination of the prequote property visit leaves a void in the underwriting process, as many new policies are now bound sight unseen. Depending on the insurer or circumstances, a third-party inspection company may inspect the property. But that process increases costs, and results may not be available until the policy is already on a company's books.

Soon, the visual component of quoting a homeowners policy will be back, but with a twist: The future of visual underwriting doesn't require a pair of human eyes. Ultra-high-resolution aerial images will provide underwriting insight with verified image-based data.

Advances in Property Underwriting

Automation has been a key focus of recent advances in homeowners underwriting. In many cases, simply entering an address into an insurance underwriting application will provide you a wealth of information about a property under consideration.

Property characteristics, largely by way of public records information, can be used to help determine Coverage A values for a property. Most insurers view public records data as a reliable independent source, but current best practice takes a "trust, but verify" approach. Additionally, the available data does not paint a complete picture of the property.

Location-based information is also available in real time. Once an address is geocoded, information about fire suppression capabilities, catastrophe risk details, and other critical underwriting elements can be automatically incorporated into the underwriting decision. Insurers' use of aerial imagery has gained significant traction over the past several years because staff can confirm a host of essential property characteristics from their desks.

Figure 1
Aerial Imagery Commonly Used Today

Figure 2
Aerial Imagery of the Future

The highest-quality aerial imagery available today does not provide the resolution necessary to discern the finer points of a property and analyze the image electronically.

Advanced aerial cameras can capture both vertical and bird's-eye images simultaneously at an altitude of 14,500 feet. Image resolution is more than 600 megapixels compared with a typical 5- or 8-megapixel iPhone image.

Figure 1


Figure 2

Photos provided by Xactware

How Aerial Imagery Benefits Underwriting

Whether linked to a call center, agent portal, website, or smartphone, ultra-high-resolution aerial images can facilitate the following underwriting elements:

Coverage Limits

  • Coverage A: Estimate the replacement cost using automatically detected characteristics and information about the property.
  • Coverage B: Search for detached garages, pools, fences, and other detached structures to determine the possible need for additional coverage.
  • Coverage E: Is there a pool, trampoline, dog run, chicken coop, or other indication of increased personal liability risk?

Risk Assessment

  • Verified, geocoded location: When a property is properly geocoded, a wealth of reliable location-based risk information about the property can be used to assess catastrophe and noncatastrophe risks, including:
    • fire protection information
    • claims histories
    • crime risk
    • foreclosure status
    • premium tax amount
    • likelihood of hail damage
    • hurricane, earthquake, wildfire, and flood risk
  • Proximity to local hazards: Measure the distance from house to brush line in wildfire-prone areas and the number of trees and their distance from the property in hurricane-prone areas.

However, current aerial imagery technology has two key downsides. Image quality is not sufficient to capture the finer details of a property. Characteristics such as roof cover or the presence of an air-conditioning unit are difficult, if not impossible, to discern. Additionally, aerial images still need human analysis and cannot support an automated underwriting workflow in which rules based engines make the decisions.

The Next Generation of Visual Underwriting

In the future, entering an address in an insurance underwriting system will provide a wealth of information about the property based on ultra-high-resolution aerial images using advanced remote-sensing technology.

Ultra-high-resolution aerial images provide the validated property information you need to make virtually any underwriting decision. In many cases, the images will eliminate the added expense of a property inspection after the policy has been bound. The following are examples of property information that can be captured using both vertical and bird's-eye images:

  • Total square footage, number of stories, foundation shape, roof shape, roof material, fireplace chimney, number of windows, average interior wall height, A/C unit, and more can all be determined by analyzing a recent image of the property.
  • Attached and detached structures, including garage/carports, porches, decks, patios, balconies, fences, and more, can be automatically identified.
  • Liability hazards, including pools, trampolines, dog runs, fire pits, trees, and more, can all be known without asking a question or setting foot on the property.

In addition to capturing the elements of a building and parcel, key aspects of the property can be measured and analyzed automatically. With roof damage accounting for 30 percent of all homeowners claims costs during the past five years, the technology can measure the roof, analyze its shape, determine the material, and provide a replacement cost estimate for the roof alone. Other characteristics can also be measured, including the length of a fence line and the size of detached buildings and attached structures such as decks, porches, patios, and more.

Vision Becomes Reality

When combined with underwriting data, previous claims information, and other relevant data, ultra-high-resolution aerial images and automated image analysis will significantly affect the insurance underwriting process. The first practical application of the technology in underwriting will likely be an alternative to on-site inspections. As the technology becomes more refined, ultra-high-resolution aerial imagery will support a rules-based quoting process.

Xactware, a member of the Verisk Insurance Solutions group at Verisk Analytics, is currently in the process of capturing its own ultra-high-resolution aerial images for use in underwriting and claims.

Neil Spector is president of Verisk Insurance Solutions – Underwriting.