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Four Best Practices Every Underwriter Should Know to Prevent Premium Leakage

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Carriers are losing $29 billion annually in premium losses

Currently, every carrier faces the dilemma between gaining new business through quick and easy customer service and writing policies with as little risk as possible. Ideally, this should be a simple process that mitigates risks for the carrier and gives the best coverage possible for the policy holder. Unfortunately, the process is not as easy as it seems and is costly for both sides.

According to industry studies, personal lines automotive carriers are losing at least $29 billion annually due to premium leakage. Underwriters risk losing business if they choose to address the issue with new and existing policyholders, while also losing money for the carrier when the policy premiums do not support the risks at stake.

The growing epidemic needs to be stopped. Best practices at underwriting help carriers to mitigate risks when writing policies.

Corroborate Commercial Use Data

While most companies have an extensive record within Dun & Bradstreet, many small businesses do not. And that can be an issue for carriers researching possible commercial use of a personal vehicle. However, there are small business databases that can give carriers clues to potential business use. While that data is helpful, it is also incomplete, causing carriers to miss commercial use resulting in premium leakage that can add up to millions in losses. At underwriting, data, such as vehicle images, can be a good source of evidence when proving commercial use. Using pictures of the insured vehicle, carriers get empirical evidence to corroborate or verify the data from the policyholder and other data sources, and determine if it matches with the given information for the policy.

Number of Household Drivers vs. Number Insured Vehicles

The imbalance between the number of drivers in a household versus the number of insured vehicles is typically an indicator of premium leakage. Carriers would be wise to use evidence that helps to determine the use of vehicles and locations as it relates to the number of drivers on a policy. Vehicle sightings add to the “evidence chain” that can help to act on potential leakage issues due to misrepresentation of drivers.

Are Your Territory Ratings Accurate?

Where are insured vehicles spending most of their time? In our opinion, where the vehicle spends most of their time is more important than where it is garaged. For instance, a policyholder can show that their vehicle is garaged at their residence located in a safe and quiet suburb. However, little did you know, the vehicle really spends most of its time in a large city where driving risks are higher. Should anything happen to their vehicle, you will lose money in claims. Vehicle location sightings can provide clues to the accuracy of your territory ratings, providing evidence of driving beyond given ranges. If your territory rating is not as accurate as it can be, you are taking on additional risk.

Turn to Product Segmentation

If you currently write commercial and personal lines policies, consider empirical evidence of commercial use identification to help with product segmentation from consumer auto insurance to artisan contractor insurance to full commercial business insurance. Evidence of commercial use, including vehicle sightings, will properly identify potential candidates for the most appropriate insurance products. This helps to price the risk correctly and insure your policyholders have the proper coverage.

Put a Plug on the Leakage

Unfortunately, risks will always impact your books but there are ways to reduce the exposure it if you are proactive. Whether it’s leveraging data and analytics to gain evidence or looking at what’s at hand, there are many ways for you to put a plug in the premium leakage in your books.