Peter M Wells Business Group, LLC
1111 N. Marshall Street Suite 304 Milwaukee, WI 53202 262-347-6091
petermwells@peterwells.us
May 15, 2014
To:
Insurance Underwriting & Claims Executives
Business Development Team Leaders
From:
Peter M Wells Business Group (Wells Group)
Re:
Insurance Innovation and Earnings Improvement
Homeowners’ InsuranceWriters Learn New Ways to IdentifyMaintenance Behavior in
Books of Property Business.
Insurers Use Life-Cycle Cost (LCC) Data to Determine Maintenance Trends Reducing
Claims Exposure(s) While Helping Policyholders Understand Maintenance Needs.
For years homeowners’ writers use non-construction variables like credit to help identifytrends towards
non-catastrophic building claims, suggestingpersonal investment is central to ongoing home maintenance.
In one scenario it is assumed that lower credit scores align with a tendency to under-finance
maintenancebecoming drivers of certain kinds of dwelling claims. Research by The Wells Group,however,
suggests that less than 30% of homeowners actually have poor creditscores and the more than 60%with
good scores also regularlyincurcomponent failure claims regardless of their ability to invest.
Because homes naturally age and key systems deteriorate,Wells research demonstrates that it is first a
condition of construction that needs to be consideredbefore non-related notional concepts since too many
homeowners lack even thebasic knowledge about their home’s maintenance needs to have the credit
discussion. It is this lack of insight that more often than not leads to component neglect. It is not clear what
individual owners would do if they actually had the up-to-date knowledge required to stay current on key
home systems that are about to fail.
The New Home Maintenance Database
Until recently there was no home maintenance databasethat owners and insurance companies could access
that explainsthe ongoing maintenance needs for homes individually.Dwellings are unique and the life cycle
trends for key systems,especially those that also affect insurance loss,had not been studied. More often
than not then even ordinary maintenance has too often been a mystery and that by itself leads to neglect . .
. yet,all this is changing.
Now, using the detailed component-based approach of Life-Cycle Cost (LCC) dataanalytics from The
Wells Group, owners and their insurance partners finally access at the click of the mouse full webenabledmaintenance reports that show the annual maintenance needs for any residential structure, with
property specific scores insurers also access that rate the degree of seriousnessas affects specific loss perils.
As important, LCC data can be combined with other data in the underwriting process to also identify on a
construction specific basis those owners whose properties are likely to go to failure vs. those that proactively replace or repair. Using this analytic, LCC data is hugely instructional identifying at the property
component level when owners need to take action so maintenance occurs, yet with fresh insight as to what
the maintenance behavior pattern is for the book, individual owners and for various other market segments
or variables.
Information Bulletin
Q2 – 2014
Page 2
Understanding Behavior in the
Book . . .
Component deterioration occurs in all
homes which trends are different
depending upon the specific property
systems involved, the location of homes
and other key variables. Uninformed or
unprepared owners can incur claims as
easily as those who under-fund repairs.
Looking at the analytic we prepared
working with more than 27 million
property records the insurance industry
provided, it is clear that losses occur
across the book as much from ignorance
as from a potential lack of funding, but
there are degrees of behavior that smart
underwriting can better understand and
manage.
In the home insurance market, incidents of maintenance related
failures make up a significant portion of losses, the average claim
now exceeding $9,000. Regardless of deliberate neglect or simple
ignorance, construction life cycles are important to understanding
and remediating exposures and no home is exempt. For improving
profitability in the insurance equation, knowing which peril-related
components in each home need attention and exactly whenis easily
the best knowledge from which to take action – which smart
insurance providers can share with policyholders who need to
understand as well.
Where Business Stands Today
Since this kind of insight is new to the market, property business
hasnot been exposed to this level of scrutiny before. When business
reviews occur, it is often revealing the high maintenance concerns
hidden in each book which danger may be masked by otherwise
solid earnings. At the same time, carriers have not yet implemented
outreach programs to policyholders although large numbers of
recent advertising campaigns hint at the magnitude of the loss
problem, but without a property specific solution.
Lifting the roof to see the components that need
maintenance is now possible with LCC data analytics.
Information Bulletin
Q2 – 2014
Page 3
Introducing LCC data to the underwriting process allows property writers to now dig in to find the
challenges in books to improve risk selection, pricing and mitigation strategies that ultimately eliminate
loss. Managing this concern and eliminating only 15% of property claims exposures yields savings industrywide exceeding $5 billion annually. LCC analytics defines the maintenance requirements and the
seriousness of potential component failures in dwellings, and by also adopting our behavior analytics,
insures now evaluate the rate to which business is likely to go to failure.
Score
Typical Book Of Business – Policies with Actionable LCC Scores –
Pre-qualified Need For Inspections
>90
Average - 30% of Policies Fall Into the Inspection Zone.
Now Carriers Know Which Ones and Why.
80
70
Finding In Advance Through LCC Scores Those Properties with
Component Issues That Need Inspection Review.
Gain Financial Advantage.
60
50
Eliminate Properties From Inspection That Don’t Have Issues.
Reduce Unnecessary Inspection Costs.
40
30
20
Average 25% of Policies Fall Into the Area of Limited
Structural and Maintenance Exposure.
10
Armed
with
this
newinformation,
insurance companies are
now seeing in advance of
losses what the drivers
are to then understand
behavior in the book – go
to failure maintenance or
active remediation. Either
way carriers can now
influence the outcome to
change
the
business
paradigm
to
their
advantage.
0
LCC Scores
Based on the tens of millions of case studies already performed, virtually 90% of the non-catastrophic
claims are identified in the predictive LCC analytic scores.
Here is another important side benefit of adopting LCC technology. For the first time, necessary
underwriting questions unique to each home can be articulated on the fly, tailored to individual
properties based on insight found in LCC summary reports. Companies and agents now define probable
exposures at the click of the mouse, eliminating one size fits all questioning that is time consuming and
retards the sales process.
Running LCC models on entire books of property business generates a new
financial outlook of the business in ways never seen before that improves
each year.
For more information, or to learn how to implement LCC data in your business, please contact:
Peter M. Wells
Peter M. Wells Business Group, LLC
262-347-6091
petermwells@peterwells.us