By Jeff De Turris
Insurers are in a position to help Americans fulfill their homeownership dreams by providing insurance to protect their biggest asset. But why has doing so become so difficult over the last few years?
Hurricanes and other natural catastrophes are one obvious answer that comes to mind. And in their aftermath, sometimes divergent views among regulators, insurers, and policyholders complicate the recovery process.
As climate continues to change, all affected parties will still need to find a way to deal with increasing storm severity. According to Verisk subsidiary AIR Worldwide, since 1990, annual aggregate losses caused by severe thunderstorms in the United States on average are responsible for more than half of all insured catastrophe losses.1 In 2011 alone, thunderstorm events cost the industry $25 billion — a high price for the cost of doing business. And it's more important than ever for homeowners to ensure roofs are sealed, gutters are clear and in good condition, and trees are healthy and pruned as a defense against strong winds that could have a devastating effect on a house after a severe storm.
However, it becomes a challenge for many homeowners to defend their dream from Mother Nature. When families are forced to live from paycheck to paycheck, paying the mortgage and keeping food on the table take priority.
Perhaps insurers need to offer homeowners a maintenance incentive. Similarly, a driver with points on his or her license has incentive to attend a defensive driver class to improve driving skills and save premium dollars. A parallel version of this course could, for example, arm a homeowner with information about the risks of an aging roof, old washing machine hose connections, and hot water heaters that have outlasted reasonable life spans. Knowledge can be powerful, and a little incentive — such as a discount, lower deductible, or some other benefit — may help reduce future losses and claims.
Some argue that coverage under homeowners policy forms has become too broad. Years ago the now-extinct HO-1 policy, which provided coverage against fewer perils than the HO-2 and HO-3, was still available. Perhaps the time has come to offer many of the broader coverages as options for an additional premium charge.
Beyond today's challenges, we must also monitor emerging trends so we can develop solutions to deal with them in a timely manner. Here are some examples:
Through the use of data and analytics, we'll be able to improve our knowledge of the occupants of the homes we insure — and their changing risk profiles.
Insurers will also need to balance their goal to increase premium volume with the desire to select good risks or price poor risks accordingly. Predictive modeling and analytics can again be critical factors in solving this dilemma.
As every insurer works to overcome the existing and growing challenges, we'll need to be careful about how customers react. They'll be looking for a positive insurance experience at a time when they need it most. All insureds need a roof over their heads, and they rely on their carrier for help after a devastating event. Providing education and information about coverage and rating changes is vital to keep customers informed and satisfied.
After all, we're insuring the American Dream.
Jeff De Turris, CPCU, is assistant vice president of Personal Lines, ISO Insurance Programs and Analytic Services.
4. Conning study, 2013 Personal Lines Consumer Markets Annual