Validating Our Tools

Economic disparities and unreliable quotes sparked debates across the country on insurance-to-value and the technology behind the tool. A solution to inaccurate data may be at hand, which is good news for brokers.

By Romana King on April 15, 2010

There is no denying that insurance to value (ITV) is a widespread problem in Canada. Still.

Even as the media focuses on industry awareness and open dialogue–which has, without a doubt, helped build an understanding and awareness of the problem–the issue is still far from being resolved.

Despite various vendor upgrades on ITV-related software few, if any, of these technical alterations met with widespread approval.

This is because the focus of the ITV problem does not revolve around the tool used to develop estimates for property losses, but on the validity of the data used to populate the software that provides these estimated replacement costs.

Without valid data, estimates become inaccurate and unreliable and, as brokers have witnessed, cause distrust in the insurance industry as a whole.

Working with their clients, brokers are increasingly frustrated by conflicting information, time-consuming processes, sometimes illogical results and a general inability to provide clear answers when it comes to addressing consumer dissatisfaction.

IBC Committee Tackles ITV Education

The formation of an Insurance Bureau of Canada (IBC) industry committee to study this issue brought cautious optimism to brokers and associates in 2009. After eight months, the committee settled on a three-prong approach:

1) An education campaign aimed at consumers that includes the development and distribution of a brochure.

2) The development of best practices for insurers.

3) The development of best practices for brokers and other distributors. The best practices will include such topics as: frequency of evaluation, minimum data points required, and ongoing tool maintenance.

Why a Resolution is Important
Carriers are also concerned with the reported inaccuracy of ITV programs. Struggling with deteriorating property results, higher frequency claims and a potential hardening market, carriers realize that inaccurate replacement estimates will only exasperate an already weakened bottom line.

As a result, carrier clout has put pressure on vendors of replacement cost calculator software to account for the figures that their tools generate.

Need to Invest in an Accurate Solution
In August of last year, the Independent Brokers Association of Ontario (IBAO), in conjunction with three carriers, announced its commitment to a data validation tool. The commitment included an investment of SCM’s Risk Management Solutions ITV tool, known as iClarify.

The thought is that by using the three million inspections SCM has on file, along with other available data-sources, iClarify will validate the data points required for a correct ITV calculation, at least for the majority of homes in Canada.

SCM will also be able to leverage the information from 18,000 loss files and 65,000 partial loss files–the largest loss database in Canada–to provide true, actual loss data to the ITV calculators.

This will go a long way in validating rebuilding estimates and the investment in this tool is a “significant step toward solving the ITV problem across Canada,” explains Rick Orr, second vice president of IBAO. The tool will also provide aerial and street level photos of the property–all at the cost of the insurer.

Why a Resolution is Important
One reason why a select group of carriers opted to fund this data validation tool is the increasing need to minimize negative market reactions. Cornered between deteriorating property results and a hardening market, it appears carriers now realize the importance of developing goodwill with current and potential policyholders–goodwill that is destroyed when inaccurate ITV assessments hit the market.

As a result, vendors of replacement cost calculator software have also felt pressure–to account for the figures that their tools generate. This pressure prompted many software changes, but this only exasperated the issue, as it left some unsure on how to use the updated tools, and lacking confidence in the results.

Of course, all vendor tools are promoted as producing an accurate replacement cost figure. Yet, brokers attest that data from the same home, entered into different calculators, can produce radically different answers.

Insurers and brokers alike are frustrated by the inconsistencies and the difficulty of finding explanations for the discrepancies.

Potential Solutions
The debate on how to fix ITV made it to boardrooms and then banquet rooms when, in October, insurance company CEOs debated the issue at the 89th annual convention of the IBAO.

Among the solutions offered:
1) Allow carriers the flexibility to set various rates, depending on the ITV tool used to provide the quote;
2) Develop standardized guidelines that can be applied to the output of certain tools;
3) Develop more comprehensive methods of collecting accurate homeowner information.
4) Don’t use ITV quotes as a competitive tool.

This last point–to stop using ITV quotes as a competitive tool–is one of the primary reasons the IBAO is investing in data validation tools. By investing in the verification of data, ITV software will be able to adapt and become more reliable, and brokers will begin to sell policies based on coverage, not discrepancies.

Homeowner Tip Sheet

With insurance premiums for homeowners predicted to rise, clients will appreciate any advice on avoiding claims and saving money. Here are a few to offer current and prospective homeowner clients:

Consider increasing your deductible to the highest you can afford, even if the premium savings do not seem to justify it. This will serve a dual purpose of decreasing your premium and increasing the chance that your loss history will be good, since incidental losses will be paid by you and not the insurance company. A loss-free record over time saves premium dollars.
Consider purchasing a monitored burglar alarm. Most insurers provide discounts to homeowners with these alarms (some as high as 20%). Also, crime statistics show that burglars often pass by homes with prominent alarm signs displayed. Property identification programs are another deterrent to burglary. These programs provide stickers where your identification number is permanently imprinted. You then place these on all valuable personal property. This makes it more difficult for burglars to fence or pawn your property.
Replace washing machine hoses when they show signs of deterioration, because a burst hose can cause extensive damage. This requires homeowners to inspect the hoses on a regular basis. In addition, turn off the washing machine water faucet when the appliance is not in use to prevent leaks.
Maintain your roof in optimal condition. A roof inspection on a periodic basis can identify sections that need repair and thus prevent water losses. Roofing materials containing high wind resistance features should be considered in windstorm-prone areas. Some insurers provide discounts for these types of roofs.
If you experience a water leak, make sure it is properly repaired and remediated, which can include the removal and replacement of building materials such as drywall. For larger water leak damage a professional who specializes in remediation should be called. These measures will reduce the possibility of hazardous and expensive mold losses down the road.
Train yourself on how a fire extinguisher works. Always keep a fire extinguisher in the kitchen and garage, and each floor of your home.
Also, have your furnace inspected each fall by a licensed professional.
Install and maintain smoke alarms throughout the house. It is best if the alarms are interconnected, so that if one goes off, they all go off. Test the smoke alarm once a month.
Consider purchasing both your homeowner and personal auto coverage with the same insurer. Many insurers offer home/car discounts for multi-line customers, with some discounts as high as 20%!