Automated Loss Runs on the Horizon?

Nov, 11, 2014 by Ernie Feirer from Property and Casualty 360

Meet Joe, a contractor seeking general liability and workers’ compensation insurance for his business. His application states that he installs residential flooring. In the Dark Insurance Company submits a quote without conducting a loss run or verifying Joe’s application. Sleeping Easier Insurance Company enters Joe’s details (name, business name and address) into a contributory loss history database and immediately discovers an open worker’s compensation claim for a back injury sustained from a high fall. The claim detail reveals that Joe has been installing exterior siding, not just laying wood floors.

Which carrier would you rather be?

Automating Loss Runs with a Contributory Loss History Database

The process of gathering manual loss runs is labor- and time-intensive. It places many carriers in the unenviable position of choosing between delaying their time to quote, or proceeding with incomplete or inaccurate information. Rock, meet hard place.

The challenge of collecting loss runs isn’t unique to commercial insurance. For more than 25 years, personal lines carriers have benefited from automated loss runs enabled by a contributory loss history database.

A contributory loss history database is a centralized data repository where every contributor receives real-time access to the industry-wide dataset, across all lines of business. Standardized loss codes enable contributors to plug the data into analytic engines—enabling them to automate loss runs and making risk selection more efficient.


Improving Risk Selection

With a contributory loss history database, carriers have access to all claims history within the database—which allows them to better understand the risk involved, make better underwriting decisions and improve risk selection. In addition, having loss history available in real time enables carriers to empower their underwriters to make informed decisions about the risks involved, throughout the policy lifecycle.

Here are a few of the scenarios in which a contributory loss history database can benefit carriers.

Scenario 1: Make better decisions with new business
Maria runs a catering business and her business owners policy (BOP) is up for renewal. However, she’d like to switch agents and doesn’t want her previous agent to know she’s leaving. Her new agent cannot obtain a loss run without going back to the current agent. However, Sleeping Easier Insurance Company accesses Maria’s loss history through its contributory loss history database, enabling them to win Maria’s business.

With a contributory loss history database, carriers can obtain a complete picture of the risk involved, particularly with new business.

Scenario 2: Find additional, undisclosed loss history
The Main Street Property Management Company owns a strip mall with several retail occupants and is seeking a commercial package policy. Using a contributory loss history database, Sleeping Easier Insurance Company conducts a location-based search to obtain loss histories. While no losses are found on the company, several of its tenants have reported fire losses due to maintenance issues.

With a contributory loss history database, carriers can link disparate information, including business entities, operations or locations, to create a comprehensive understanding of the risk involved.

Scenario 3: Make better decisions at point of renewal
Alex’s general liability policy is up for renewal with In the Dark Insurance Company. When the initial risk was written two years ago, there was an open claim with a reserve of $100,000 for a products liability loss. That claim is now closed. Because the manual loss run process is so onerous, In the Dark Insurance quotes based on the initial risk. Alex’s agent shops the policy to Sleeping Easier Insurance Company, who sees from the contributory loss history database that the previous claim is now closed. Sleeping Easier Insurance provides an appropriate quote to Alex’s agent—and wins the business.

With a contributory loss history database, carriers can enhance underwriting at point of renewal. By monitoring reserves closely, they can price risks appropriately, retain existing customers and even gain new ones.

Scenario 4: Attract the business you want
Tired of losing business to its competitors, In the Dark Insurance Company signs onto the contributory loss history database. As they begin to use automated loss runs, they realize that the bulk of their new business—which they would have previously underwritten, potentially without complete loss runs—warrants a closer look. Further, by obtaining automated loss histories on each of their upcoming renewals, In the Dark Insurance discovers that much of their business was riskier than they thought.

With a contributory loss history database, carriers can ensure that they’re writing the business that they want. The scenario mentioned above is a real one, wherein bruised business drifted toward In the Dark Insurance. The market didn’t go where the insurer positioned itself; it went where it was pricing.


Looking Ahead

Carriers can improve the efficiency of risk selection and enable disciplined underwriting by tapping into a contributory loss history database. In addition, its potential to invigorate commercial lines goes beyond new business. It can enable carriers to enhance their book of business—for example, by monitoring policies with open reserves to better price that risk at time of renewal. The database can also enable carriers to empower their claims adjusters to make better decisions. For example, a savvy claims adjuster can search prior claims for negligence, fraud or other patterns that might raise a red flag.

Finally, a contributory loss history database can be a tremendous benefit to the industry as a whole. Having standardized data means carriers can empower their underwriters to make better decisions in the field and at point of sale. Through enhanced risk selection—and the more informed decisions that it enables—carriers can make better underwriting and pricing decisions.

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