Inflation, fluctuations in building costs, and hardening reinsurance markets demand new approaches to portfolio management for commercial insurers. As part of our AAIS Webinar Series, AAIS hosted a virtual presentation on March 16, 2023, featuring AAIS Partner OneShield, the cloud-based, core systems platform providing business solutions for MGAs and P&C insurers. The session was hosted by Stephanie Vasey, Product Manager of Commercial Lines and Inland Marine at AAIS, and moderated by John Dunn, Vice President of OneShield. Their discussion explained how to reduce risk overall and addressed the inflationary economic conditions with a greater understanding of insuring commercial properties. Industry panelists Jeff Heine, Chief Revenue Officer of Betterview, and Skip Coan, Vice President of e2Value, Inc., showed attendees how aerial imagery, data analytics, and property estimation tools bring a new level of accuracy and transparency to the commercial property policy lifecycle.

Trends in Commercial Property

Dunn started off the discussion by requesting overviews of what the panelist are currently seeing in the market. Coan explained that while inflation isn’t a new trend, COVID did have a larger effect than normal. One point that he likes to make clear, is that inflation is not one in the same. It is different regionally and by state. “Florida has a 7.14 average inflation rate across the state, but Fort Myers and Miami are both over nine,” Coan reported. “Fort Myers is over nine because of [Hurricane] Ian, and Miami is over nine because inflation is driven by the people who live [there].” When developing costs, Coan insisted that it is important to keep in mind regional costs all the way down to zip code and census block level. “When you're underwriting, you need to understand that different regions are experiencing inflation and cost factors differently.”

Inflation is affecting every American and when it comes to the confluence of factors in the renewal books, Heine has noticed there tends to be a mismatch of pricing terms and conditions. “We’re urging our clients to take a good healthy look at the renewal book to make sure that they're managing that risk,” he said. “When you're adjusting values, you have to look at everything.”

Current Challenges and Actions Carriers Can Take to Address Them

Coan reported that more than 50% of homes are short to value. “These [catastrophic] losses all over the country have shown that no one has a book that's a true value,” he emphasized. “Everyone thinks they have a book that's insured to value, but you don’t. When you run books of business, you're going to see the valuations of those books are more than 50% undervalued.” Coan admitted that this is a common problem, even more so on the commercial side. “They get looked at less often,” he stated, “and there's less information that the carrier is getting from the broker or the agent to write those policies.”

Heine believes carriers are under great pressure due to the tightening capacity. “There are a lot more questions at the portfolio and individual property levels when it comes to the middle market and large commercial,” he said. “At that level of discipline, folks are able to show that they actually have a command over their book and a process to help manage that. Part of what we're seeing is a gap in terms of what these folks are insuring for and what the reinsurers are looking at.”

In terms of action to help address these problems, Coan believes it starts with data and technology. “You need to have third-party data built in because you can't have all the information on this risk,” he advised. “It has been proven that vendors like Betterview and e2Value can help adjust the data, dissect that data, and provide customers with really good information on these risks.” Coen stressed that it is important to take advantage of these advances in the marketplace. “If you're not in a more digital world doing things like incorporating an API and pulling in real-time information so you can give a real-time solution, then you're going to fall behind,” he claimed. “Everyone understands new technology, so the excuse that customers aren't going to want to do that is not true. You need to bring in the right data to process your claims, your underwriting, and your submission policies.”

The Way Forward: Progress of Insurers & Technology/Data Working Together

The integration of new technology such as API has been helpful for companies like Betterview when it comes to strategy. “Resources are at a premium wherever you go and or customers were absorbing that,” Heine explained. “Now, it's like someone flipped that discussion and we’ve decided to absorb that time, effort, and cost. Overall, technology has advanced the actual value of what folks can get over a period of time.”

While there may be some hesitancy to get involved with data and technology providers, especially from legacy carriers, Coan believes it will pay off in the long run. “It actually makes that traditional underwriting and claims process more robust because you're able to filter out those risks that are functioning and priced correctly and focus more time on where your risk is really valuable,” he assured. “So, you're not losing any of the traditional core values your company may have. You're actually enhancing them.”

If you would like to view the presentation again in its entirety, please click the video above.

Questions? Please don't hesitate to reach out to any of the featured speakers through the contact information below.

Stephanie Vasey

Product Manager of Commercial Lines and Inland Marine (AAIS)

stephaniev@aaisonline.com

John Dunn

Vice President (OneShield)

jdunn@oneshield.com

Jeff Heine

Chief Revenue Officer (Betterview)

jheine@betterview.com

Skip Coan

Vice President (e2Value, Inc.)

scoan@e2value.com