The Risks of Hazard

One of the shortcuts that every blogger uses is using a Top 3 list of blogs they’re already written. With the end of the first quarter of 2017, it’s time for Risks of Hazard to shamelessly use that shortcut. Without any ado:

3. Proper Flood Insurance is Coming This post lauded the filed flood rates from Palomar, which is the first set of filed rates NOT based on any NFIP stuff. It was a hit – even with people not working for Palomar.

Two weeks ago, Insurance Thought Leadership published a piece on innovation by Devie Mohan, and there’s a thread in there that deserves a bit of a deeper dive.

The article is called Three Major Areas of Opportunity, and lists three ways that technology / innovation will impact insurance in the near future. Nothing controversial in the choices – they are the calling cards of “innovation” for insurance:

1. Underwriting automation
2. Connected devices (i.e. IoT)
3. Cyber

Naturally, we’ll take a deeper look at the underwriting piece, with IoT and cyber stuff beyond the Risks of Hazard horizons.

Ms. Mohan lists six benefits than underwriters can realize with the modernization of their systems, and it is hard to argue with any of them. Here are all six, with quotes from the article and comments:

1. Data

• Ms. Mohan states: “Automation in the insurance industry can make underwriting both more efficient and more precise”.
• We here could not agree more: using underwriting analytics that increase automation is a sure way to reduce underwriting leakage.

Last Wednesday Fitch released their report on 2017 P&C Underwriting, and it was a pessimistic appraisal. Soft pricing, increased competition, increasing cat losses - sounds bad, doesn’t it?

Earlier this year, we introduced the concept of the butterfly chart at the Risks of Hazard. To quickly summarize what the butterfly chart is, there are two distinct opportunities for underwriters to grow flood premium each forms a wing of the butterfly.

This week I am in Atlanta hanging out at the annual NAPSLO convention. NAPSLO is the Nat’l Association of Professional Surplus Lines Offices – but if you don’t know that already, it probably still doesn’t make much sense. After all, what’s a “surplus line”? It sounds like an empty subway, or maybe the third line at a square dance.

Here is NAPSLO’s definition: surplus lines insurers fill the need for coverage in the marketplace by insuring those risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers.

Further, there are three categories of such risks:

1. Non-standard risks, which have unusual underwriting characteristics.
2. Unique risks for which admitted carriers do not offer a filed policy form or rate.
3. Capacity risks where an insured seeks a higher level of coverage than most insurers are willing to provide.

Just because it’s surplus, though, doesn’t mean it’s a small sector - $38B in annual written premium in the US is a significant portion of the market.

But why am I here?