August 4, 2010 by Greg McCutcheon
One of the biggest concerns for many insurers and brokers is how to increase values to proper levels without dislocating their existing customer base. Equally as daunting is how to manage the project as part of the renewal cycle, implementing new business processes and underwriting changes at a time when Ontario Auto Reform and other company priority lists are already at capacity. Yet, another critical concern dwells directly at point-of-sale. While these concerns need to be acknowledged, the reasons to move forward with new practices and to “level the playing field” on insuring-to-value across the industry prevail over any arguments to remain the status quo.
One major issue that continues to mar the insurance-to-value (ITV) problem is that insurers are denied the proper premiums necessary to sustain market profitability and price stability. Another facet of this problem is that insureds, who are currently properly insured-to-value, are subsidizing those who are not. Add to this the increase in catastrophic loss claims, where insurers and insureds suffer negative repercussions due to claim unpredictability, and increased loss frequency and severity. The result of this state of affairs is an $11 billion problem that spans across the country.
It’s a problem that must be addressed now and could result in price reductions or increases for consumers as the market moves to proper valuations. Still, this correction in valuations is essential; if property values do not accurately reflect the potential damage of turbulent weather patterns, the cost of this problem will grow–quickly.
Within the existing market conditions, we have witnessed the emergence of new technologies and solutions brought forth by the vendor community to help insurance companies achieve their ITV objectives. Never have there been so many ITV solutions in the Canadian market as we now have in 2010. These offerings provide many options to standardize best practices, in regards to ITV calculator(s), data validation services and property data analytics suppliers.
The choice in ITV software solutions is beneficial as it creates a very competitive market and prompts the vendor community to work hard at enhancing their existing offerings or create new services backed by state-of-the-art technologies. Ultimately, the goal of these solutions is to enhance workflow, aid user experience, and produce more accurate valuations.
Reaching the Consumer
While there are debates as to the likelihood that an educational campaign will make consumers “experts” on the details of their home, such as size, construction styles, and differences between builders and custom-grade construction, the industry can use ITV education as a way to get closer to the customer and reassess their individual needs.
At present, some sales representatives use certain processes to produce lower valuations in order to be more competitively priced. This practise–using ITV as a competitive tool–could diminish the significant work done, thus far, by the industry to address the insurance-to-value concerns.
For example, many policyholders are acutely aware of the global economic slowdown that hit Canada over the last 24 months. Yet, despite the recession, property values steadily increased (or remained constant) in the majority of Canadian cities. In addition, home renovations continued across the nation, fuelled by recent tax incentives and the desire to upgrade appearance and, ideally, increase property value. As a result, an education campaign, spearheaded by brokers and insurance professionals, can help consumers understand the value of their homes, despite tough economic times; this also helps homeowners appreciate whether or not they are properly insured, based on their homes’ current and future value. This is ideal for brokers as the ability to reach out to the consumer further positions us as the distribution channel of trusted advisors to the client, and this could lead to additional sales opportunities.
The Road Ahead
Undoubtedly, this is a pinnacle moment in our industry. As an industry we have clearly defined all shortcomings within the existing processes that have led to the insurance-to-value problem. Executing solutions, to once and for all solve the problem, will not necessarily be easy, but from a financial and best practices point of view, is essential. New technology can only bring efficiencies to existing workflow, enhancing both the customer experience and the accuracy of valuating properties at time of quote. In addition, updating in-force policies to proper valuations will ensure that those who are properly insured are not subsidizing those who are not. For the business-savvy, correcting ITV will produce strategic long-term advantages that strengthen market position and foster long-lasting benefits for years to come. Now is the time to act.
Greg McCutcheon is president at SCM Risk Management Services, and has over 15 years’ experience servicing Canada’s P&C industry.
|While at university, I had a professor who lectured that all decisions that have shaped Canadian history past and present are simply based on economics, and more importantly, dollars and cents. While at the time I found that hard to accept, what business decision is not most heavily weighted on the bottom line? This is an $11 billion problem. No matter what else is said about ITV, this fact needs to be the central reason why insurers must push forward and solve it. –Greg McCutcheon|
© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the May 2010 edition of Canadian Insurance Top Broker magazine.
This story was originally published by Canadian Insurance Top Broker.