Verisk: Faulty Application Info Can Erode Auto Insurers’ Bottom Line
Erroneous policy information from customers and agents, whether by accident or intent, can distort actual risk and take a heavy toll on auto insurers’ underwriting results. Research conducted by Verisk Analytics for three large insurers found deteriorating application integrity contributed significantly to the companies’ worsening loss ratios.
Overall application integrity (as measured by the average RISK:check continuum score) eroded by more than 15 percent in key areas. Among the nine factors identified that could explain the growing incidence of missing or invalid entries on applications are the following:
- Consumers may be unable to accurately complete some fields, such as mileage.
- Soft market conditions may breed greater tolerance for application gaps.
- Incomplete or unverified third-party prefill data may introduce errors.
- Deliberate misrepresentation or fraud.
- Agent manipulation to lower rates in order to gain new business.
The findings are explored in Application Integrity: The Whole Truth, a new Verisk Insurance Solutions Innovation Paper based on time-series analysis of more than 3 million policies from 2009 to 2016. Verisk’s quality-of-book analysis on the three insurers produced some notable statistics; for example, invalid or blank driver’s license information was found in 12.1 percent of policies.
The authors suggest auto insurers should consider screen technology and/or predictive analytics to answer several questions, such as:
- Is the applicant who he or she claims to be?
- Who has insurable interest?
- How is the vehicle being used?
- What is the risk profile?
Read the white paper: http://www.verisk.com/underwriting/auto/application-integrity-whole-truth.html
Source: Verisk Analytics