The Ecopia AI team had a great time connecting with the Insurtech community at ITC Vegas in September. Between sponsoring the c-suite reception, hosting a VIP dinner for our customers and partners, and overseeing a putting competition at our booth, we had a busy week! Luckily, we still managed to attend some sessions to hear about what’s new in the world of Insurtech.
Here are our key takeaways from ITC Vegas 2022:
TLDR: Data is the future of Insurtech. However, the data has to be high quality to be useful, and carriers are struggling to find the right data at the level of quality they need.
COVID Didn’t Just Change the Retail Industry - It Also Changed Insurance
It wouldn’t be a 2022 trade show if there wasn’t some mention of the pandemic, right? While everyone knows COVID-19 had a huge impact on the healthcare, retail, and service industries, we were interested to learn how insurers are facing a similar shift in how consumers interact with them in a post-pandemic world.
In one session, we learned how consumer expectations for property and casualty (P&C) insurance carriers have evolved over the past few years, and how carriers are turning to data to improve the client experience and reduce churn. Verisk noted that since 2019, comparison shopping for P&C insurance policies has increased by 63%. As more insurance transactions take place online, so does more browsing of other carriers to make sure the best price is being received.
The ability to meet and exceed these higher consumer expectations is heavily dependent on the ability of the carrier to price risk accurately and fairly. Carriers need to price policies correctly so that they are not overpricing them (causing consumers to go to a competitor), or underpricing them just to win business (opening the carrier up to excess risk). The best way to solve this? Price risks as accurately as possible using the highest precision data available.
Accurate Underwriting Data is Critical to Maintaining Competitiveness
The critical foundational element to pricing risks accurately is location (geocoding). However, traditional geocoding solutions do not provide the level of granularity P&C carriers need, as they use approximations to estimate where a building is located in relation to risk factors. These approximations return a single point for each address - based on the assumption that the building is either in the center of a related land parcel, or at the point along the street related to the street-based address; some insurers even resort to postal code centroids when a parcel or street-based geocode is unavailable. None of these geocoding methods adequately represent where the building(s) at that property are located in the real world.
The solution lies in building-based geocoding; the ability to understand the precise location of each building related to a given address. However, to solve this problem, you first need to understand the location of every building across the country - a non-trivial feat. Insurers that leverage building-based geocoding in their underwriting process deliver the most accurate quotes to customers shopping for the best price, reducing the likelihood of both overpricing a policy and losing to another carrier. In a panel, Verisk stated that using precise data in insurance is not just important for gaining operational efficiencies, but it is in fact critical to maintaining competitiveness in relation to other carriers.
The #1 Coverage Gap in the Insurance Industry is Flood
Flood is by far the most underinsured hazard event in the insurance industry. In another session we attended, flood experts shared that there was over $82 billion dollars of flood-related damage in the United States in 2021 - and only 7% of that was insured. This coverage gap is largely due to the fact that most insurance companies consider flooding to be a “secondary peril.” As a result, most people impacted by floods never even realized they were at risk in the first place.
But while flooding poses one of the largest risks to properties today, it is also one of the most complex. Unlike other hazards, flooding affects every property differently due to various environmental and property factors. Fifty years ago, floods were thought to be uninsurable. While that is no longer the case thanks to the insurance industry’s adoption of new technologies and data (including geospatial data), the industry still does not always use the most accurate data for pricing policies.
For the Insurtech industry to effectively respond to flood risk (which is only increasing due to climate change and new development in flood prone areas), one panel of experts highlighted the importance of leveraging new data and technology such as artificial intelligence (AI) in assessing property risk and developing flood mitigation strategies. They suggested that traditional flood zone data is antiquated, as flooding does not start and stop at arbitrary invisible boundaries. They emphasized the importance of using high-quality data to feed flood models in order to adequately assess the risk associated with any given property.
An Accurate Understanding of Location is the Foundation of Risk Assessment
More than once, conference attendees who stopped by our booth shared with us that they were shocked at how many data companies were present at ITC Vegas this year. It certainly seems like more and more data-centric startups are appearing in the Insurtech market. But one of the other things we heard on repeat at ITC was that, despite the multitude of options, many carriers are still struggling to find high-quality quality data sources that can enable them to compile a comprehensive view of a property. Ecopia AI hosted a session with FM Global and Tokio Marine to discuss some of these challenges and the importance of starting with an accurate understanding of location as the foundation for risk assessment.
Karl Meredith, Manager of IoT and Digital Assessment at FM Global, shared that data and Insuretch is key for carriers scaling their business in both quantity and quality. As books of business grow, insurers cannot feasibly send individuals out to specific properties to assess risk. Instead, they need data that is as reliable as that produced by an actual human property assessment. Meredith continued to say that “one of the most vexing problems is getting from the address to the physical structures associated with that address.” This challenge represents a foundational first step of risk assessment - associating text addresses to physical locations.
John Ferraro, SVP and Chief Pricing Actuary of Tokio Marine North America Services, also highlighted this challenge, stating that most insurers today still need to improve their underwriting process with building-based geocoding, then layer in data related to construction material and other property attributes.
Ecopia’s Jon Lipinski raised the question “Without a solid foundational understanding of where each building on a property is, how can we effectively rate the risk of those buildings?” In other words, if the geocoding foundation a carrier uses is inaccurate, risk may be calculated based on the wrong location. “Once carriers master their geocoding, they can layer on additional information to accurately determine risk.” Lipinski went on to explain Ecopia’s vision of building a digital twin of the earth to provide insurers with a source of truth for property and environmental information, and the key role partnerships with carriers play in that vision.
We enjoyed our time at ITC Vegas and are already looking forward to the next Insuretech Connect event. In the meantime, learn more about Ecopia’s building-based geocoding, detailed land cover data, and development of a digital twin.