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Verisk Insurance Solutions has developed a Top 10 list based on more than 45 years of experience surveying buildings and sites. The list helps you mitigate hazards, reduce deficiencies, and improve your bottom line. Here’s a brief overview: Understanding maintenance practices is an important part of the risk selection process for a commercial property underwriter. With our High-Risk Notification Service, a field analyst calls you at once when hazards or conditions are discovered that present immediate potential for loss. Next, the field analyst follows up with a detailed email and photographs to document the hazardous conditions. That allows you to take prompt action, which may include making recommendations to the property owner to eliminate the hazards. For example, a property near a high-hazard operation or next to a storage tank with flammable liquids can present serious potential risks. Underwriters should also know about additional exposures, such as: Premises exposures—such as storage areas, balconies, stairs, and handrails—can play a significant role in underwriting decisions. You also need accurate information on other premises exposures, such as swimming pools, animals, lighting, fire escapes, and elevators. Verisk offers two definitions of loss estimates: Type 1 is an estimate of the maximum expected loss in a single fire, expressed as a percentage of the building’s value, when critical protection systems are functioning as expected. Type 2 is an estimate of the largest fire loss likely to occur if a key loss-mitigation system, such as automatic sprinkler protection, fails. The two measures can help you understand the extent of the risk and manage it better through hazard and loss analyses. You can assess economic loss to the property and determine the amount of reinsurance you need. Insurers need accurate assessments of replacement costs in case of an event.
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The estimate will improve your ability to charge premiums appropriate to your risk, better quantify exposure, and help you inform your customers on adequate policy limits. By obtaining a recommendation, you’ll get the information on the building and each occupant. A recommendation should include specific information to identify hazardous conditions, highlight fire protection measures, and suggest modifications for both. The information can help you price coverage more accurately and provide a valuable cost-benefit analysis for suggested improvements. One of the main considerations in making that determination is assigning the proper construction class: What are the materials. What percentage of the structure consists of each. And how much damage will the building sustain when exposed to fire. Properly identifying the construction class can help the underwriter rate the risk more accurately. Verisk defines six primary construction classes for commercial buildings. (FYI: We define nine primary and 49 subclasses for wind.) You can find detailed information on our website. Verisk and ISO measure information in the following ways: Better PPC ratings mean better community fire protection and translate to lower fire losses. For more details, visit the PPC section of our Community Hazard Mitigation website. Underwriters need to know if they will operate when needed and to make sure risks get full credit for such systems. Our field analysts conduct sprinkler assessments that include the design and intended use of the system, scoring the expected overall effectiveness of the installation on a score of 0 to 100 based on a schedule of deficiency points. A working sprinkler system is critical for insurance rating and prevention of extensive property damage. If you’re underwriting a commercial property, everyone benefits when you give your insured recommendations for reducing hazards and improving protection deficiencies at the property.
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Knowing the hazards lets you adequately price the risk based on current conditions. Common hazards include deficiencies in electrical components, heating systems, and housekeeping. Special hazards include flammable and combustible liquids, spray-painting operations, commercial cooking, welding, and cutting. We’ve focused on ten essential pieces of information—to help you make the right business decisions. For more information on Verisk’s commercial property tools, please visit our Commercial Lines Underwriting website. Please tick the box to indicate you are giving us your consent to place cookies on your device. Learn aboutPress enter to select and open the results on a new page. Today’s carriers will need to evolve the role to meet the industry and customer needs of tomorrow.What’s more, operating results—more than capital leverage or investment returns—has the greatest impact on overall financial performance. And within operating results, loss ratio generates much more variability than expense: when comparing top- and bottom-quintile performers in both the United States and the United Kingdom, loss ratio varies by up to 28 percentage points, whereas expenses vary by just 2 to 4 points (Exhibit 1). If you would like information about this content we will be happy to work with you.Compared with retail personal lines, commercial exposures are heterogenous, intermediated, and often qualitative. This heterogeneity is even true in the small and medium-size enterprise (SME) category, where thousands of microsegments can each have unique risk profiles and face different hazards. Risk outcomes are not binary—policy wording and exclusions might seem straightforward until they are challenged by litigation and subject to interpretation. Further, achieving and documenting improved results in underwriting performance can take up to several years.
As technologies such as big data, advanced analytics, and artificial intelligence continue to advance and new applications emerge, each of these building blocks will evolve and become increasingly more data driven. Organizations must adapt to incorporate these technologies while also focusing on critical enablers such as distribution, culture, digital, and strategy. Collectively, these building blocks and enablers are the foundation of underwriting excellence. Underwriting has historically been slow to change, yet clients—and the perils they face—are rapidly changing. Making transformational investments to reinvent the role of underwriting has never been more important. When seeking to improve performance, it is important to recognize that underwriting is more than risk selection and pricing. It requires a comprehensive set of capabilities across hard and soft skills, qualitative judgments about future industry performance, and rigorous portfolio management to avoid markets where evenUnderwriting performance is also influenced by exogenous factors, such as the business development activities with distribution partners to generate consistent and attractive submission flow. Underwriting operating models vary significantly based on industry, region, client size, and product. For instance, SME coverage needs are relatively standard, so simplicity and automation are critical success factors. Large corporate accounts have more bespoke coverage needs, so successful underwriting encompasses rigorous risk selection, creative but prudent coverage design, and limits management. Midmarket companies occupy a unique and sometimes confusing position between large and small accounts. As such, they require a lighter touch than large-account underwriting to be cost effective, yet they also demand more analysis and structuring than simpler SME accounts.If you would like information about this content we will be happy to work with you.
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Over time their appetiteThe main supply dynamics are other companies exiting and entering the market or adapting their own appetites, whereas the main demand dynamics include changing perils and coverage needs, evolving exposure traits, and new business models. And great companies strike a delicate balance between consistency in appetite and the need to continuously calibrate that appetite, pulling back when conditions are unsustainable. To enable this balance, leading companies have established management information frameworks that provide a multilensed view of the portfolio. This perspective captures the many nuances of commercial performance, including treatment of prior year development or catastrophe and shock losses. It also thoughtfully considers where and how to include or exclude allocated expenses and explicitly incorporates capital-based returns alongside typical profit-and-loss performance. Last, performance management translates directly into account-level guidance on target rates and renewals, with real-time corrective action taken within the renewal season. Some cases revealed a concerning lack of clarity about drivers of underlying performance. If you would like information about this content we will be happy to work with you.The notion of a model-driven price for any risk is now commonplace in the industry. Technical pricing has its limitations: it sometimes results in prices that are overly biased by input factors, creating under- or overpriced guidance (Exhibit 3). Further, in practice, client and competitive considerations determine the “real” price. That said, as imperfect as it may be, technical price can serve as a benchmark that provides invaluable insight into directional movement of pricing for a portfolio of common exposures over time. It can also serve as a tool to support discussions with clients and negotiations with brokers. If you would like information about this content we will be happy to work with you.
Debate about divergence from technical becomes a regular part of performance discussions. They recognize that technical pricing is a critical input to ensure price adequacy but also that it cannot be the sole basis for pricing risks. In some cases, this approach is explicit and can be articulated. In others, it is implicit and reflects intuition based on hard-learned experience. We have also observed that data-driven tools can greatly supplement human judgment, enabling many successful underwriting teams to outperform peers, especially by employing superior risk selection in overcapitalized markets in which pricing is barely adequate. These tools have proved successful across all segments of risk, spanning SME to midmarket to large to specialty accounts. Despite good intentions, this overemphasis on analytics led to a vicious cycle in which imprecisely modeled guidance did not accurately anticipate future risk experience. As a result, underwriting performance deteriorated, staff lost faith in the models, and (since judgment and creativity were discouraged) underwriting skills diminished. When successfully implemented, new data-driven tools supplement—rather than replace—human judgment. In addition, beyond the models, successful companies build a culture that systematically encourages qualitative debate around underwriting outlook. Having an institutional forum for this debate is the hallmark of many great underwriting teams. In this environment, underwriters challenge one another. Collective problem-solving informs transaction decisions and translates into an adapted, sharpened underwriting appetite. These adjustments to appetite happen rapidly and proactively, rather than by reacting to adverse development or awaiting ex post facto guidance from the corporate center. Within large-account, shared-and-layered towers, attachment point is an additional consideration.
Best practice is to have quantitative, dynamic tools that track performance and provide “what if” guidance to inform how these parameters should change. For instance, in the American SME market, our comparison shopping across five different companies found up to a 24 percent difference in price and a 233 percent differential in the amount of general liability for the same risk (Exhibit 4). While these accounts may typically be low frequency, deploying capacity more prudently could have a material impact on the results from a handful of losses. If you would like information about this content we will be happy to work with you.If you would like information about this content we will be happy to work with you.Given the past several years of soft conditions, coverage creep—that is, providing broader and more accommodating coverage—has increasingly undermined performance. We also saw early attempts to apply artificial intelligence and translate qualitative contract wording and endorsements into well-defined parametric variables. Here, the insurance industry lags behind other industries, where intelligent contracts and rules-based, data-centric clause management have become commonplace. In addition, leading companies are investing to embed data-based insights across the five building blocks, with data and advanced analytics informing all aspects of underwriting. Since these technologies are still nascent, great companies are encouraging—in fact, demanding—the blend of art with science, ultimately excelling at each. Four critical enablers of great underwriting are distribution, culture, digital, and strategy. Distribution management goes hand in hand with underwriting performance as it allows access to a quality submission flow. However, the compliance process is sometimes cursory and focused on “checking the box” process discipline.
At worst, we observed cultures where rigid controls had eroded morale, leading to a stifling environment in which frontline staff were discouraged from applying initiative and creativity. In contrast, great underwriting companies establish an underwriting review process that is both rigorous and constructively challenging, in a manner that meaningfully contributes to improving underwriting quality. There is a clear cascade of authority, with a fast and constructive process to escalate issues. However, decision making definitively happens at the front line. With empowerment comes accountability, so the front line is held accountable for results and receives compensation directly tied to underwriting performance. Teams have joint ownership of results and are encouraged to constructively challenge each other. In this way, company-wide views on underwriting performance holistically incorporate input across functions. Leading-edge technology is less mission critical to commercial insurance than to other industries, arguable because underwriting is an annual transaction that does not require the same level of real-time, on-demand execution compared with more transaction-intensive industries. Also, loss ratio has much more impact on performance than expense, sometimes resulting in a vicious cycle where expense management is neglected and actually becomes a drag on performance. As such, the technology landscape in many commercial insurers remains hindered by legacy systems. Based on our observations, anywhere from 30 to 40 percent of underwriting’s time is spent on administrative tasks, such as rekeying data or manually executing analyses. If you would like information about this content we will be happy to work with you.Today’s modern platforms are based on cloud-native and multispeed architecture, allowing the automation of application development. Furthermore, application programming interfaces (APIs) more readily enable incorporation of external data and tools.
These advancements have placed a fully digital workflow, with seamless access to data, within arm’s reach. Supported by a user-friendly underwriting workbench, companies that establish modern architecture can capture a multitude of benefits, such as making the job more interesting for underwriters, allowing more effective governance, enabling a better handle on productivity, and—critically—facilitating easier access to data and advanced analytics. One challenge has been the translation of business requirements into practical technical specifications that are fit for purpose and accommodate the complexity inherent in commercial underwriting. Another challenge has been sourcing the required talent and capabilities to fuel transformation. Yet another has been building a business case for change when the ROI may not be obvious, at least in the near term. And yet another challenge has been the mix of a “large IT project” mind-set with incremental thinking, in which companies install new monolithic systems through massive systems integration efforts. Typically, the result is only marginally better than the status quo. Instead, companies should be transitioning to a cloud-native, microservices environment in staged, agile waves. As insurers continue to confront the burden of legacy IT, they must appreciate the potentially profound benefits of successfully establishing a nimble, modern architecture. How do we believe the supply of capital, competitive intensity, and customer coverage needs will change over the next several years. Should emerging risks be excluded or translated into expanded underwriting appetite. What is the willingness to give up margin to increase gross premiums and market standing. Can coverage and terms be differentiating. Are there unique services that can result in premium pricing or other benefits, such as higher retention. Or, are services “table stakes”—and commodity pricing merely a reality that must be accepted.
The lines blur between the chief underwriting officer and chief strategy officer. To do this, leading companies recognize that cutting-edge expertise cannot be exclusively developed in-house. It often requires tapping into broader ecosystems and involving third parties. As underwriters look to provide this expanded level of service, more third-party partnerships will develop where insurance companies are seen as the “tip of the spear” in helping clients navigate the complex ecosystem of risk prevention. Building third-party relationships—and incorporating them into the underwriting value proposition—represents a dramatic shift for the industry and will require new capabilities. If you would like information about this content we will be happy to work with you.Spreadsheets are now commonplace—not to mention, Uber now competes with taxis. Underwriting may look very different in the future compared with today. There will be visualized views on frequency and severity across portfolios, supported by real-time, dynamic “what if” analytics executed by drop-down menus. The impact from new perils can instantly be simulated. Re-underwriting a portfolio could happen within minutes. Individual risk decisions will be made in concert with reinsurance-style, portfolio-based underwriting across accounts. Successfully embedding analytics into underwriting requires more than bleeding-edge analytic tools, thoughtful change management, and a center of excellence staffed by brilliant PhDs. The underwriter and translator roles will increasingly become synonymous with underwriters and data scientists working together in agile teams. Companies are rethinking how they source talent so that the next generation of underwriters can handle this expanded, more challenging scope of responsibility. So far, “digital direct” has had slow adoption in many markets, though we know there is customer interest in transacting online and that up to 70 percent of customer journeys start in direct channels.
The Internet of Things is also beginning to have more widespread adoption and may increasingly be directly incorporated into the underwriting process. Considering all these factors together, commercial underwriting may experience disruption similar to the airline industry, in which artificial intelligence is responsible for most of the navigation outside of takeoff and landing. In the future, underwriters will become more like pilots, with mundane activities increasingly automated. Additionally, technology, operations and underwriting functions will sit side by side, with the underwriter serving as agile coach and translator to actively guide ongoing platform development. To attract younger talent, companies need to recognize that millennial and Generation Z workers are looking for roles that expose them to a wider array of challenges and opportunities. We may see underwriters who build skills across both short- and long-tail lines, rather than the typical monoline focus. Underwriting may expand to encourage more cross-functional and hybrid responsibilities—potentially with engineering, claims, finance, or operations. Another innovation could be more team-based structures, where small groups of underwriters are collectively responsible for portfolios or subsegments of a portfolio. Many of these efforts are already happening in a de facto way throughout the industry—but there is potential to do them more systematically. Excellence must begin with the basics: ensuring robust and modern practice across the five essential building blocks as well as the four critical enablers. To succeed, these cannot be tactical investments to upskill today’s function, but require a reinvention mind-set to fundamentally redefine the underwriting role. In doing so, leading insurers will establish underwriting as an expanded, more exciting role that matches the pace and complexity of today’s world. We'll email you when new articles are published on this topic. Please try again later.
Please review this important information. Review what has been proposed. Find how and where to get prelicensing and continuing education in this section. Separate enrollment is required for the Invoice Payments EFT Program and Tax EFT Program. Operating a business is extremely challenging without having to worry about suffering significant financial loss due to unforeseen circumstances. Commercial insurance can protect you from some of the most common losses experienced by business owners such as property damage, business interruption, theft, liability, and worker injury. Purchasing the appropriate commercial insurance coverage can make the difference between going out of business after a severe loss or recovering with minimal business interruption and financial impairment to your company’s operations. Beginning a working relationship with a reliable, competent broker-agent can be as crucial to your business plan as getting professional advice from an accountant, banker, human resources analyst, payroll specialist, lawyer, or a trusted business mentor. The Insurance Brokers and Agents of the West (IBA West) and the Western Insurance Agents Association (WIAA Group) are professional associations that can assist you in contacting a commercial insurance broker-agent in your local area. Also, looking through the local yellow pages under the insurance section can aid you in locating the phone numbers for those broker-agents specializing in commercial insurance. The CDI is responsible for licensing all broker-agents who sell or market insurance in California.While the term broker-agent is a specific license designation with the CDI, brokers and agents act in different ways to secure insurance for consumers. Brokers may sell for many insurance companies and are usually paid by you in the form of a broker fee charged for placing and servicing your insurance business.
Agents are appointed by insurance companies and are paid a commission by the insurance company with which business is placed. It is possible to approach several agents for quotes on your commercial insurance business since any particular agent may represent a limited number of insurance companies. If you currently have business insurance, the broker-agent will ask to review your current policy. This is a standard practice used to determine the current coverage you have. It is not necessary to share the premiums you have paid for your current or prior business insurance, but you should be forthcoming with any other information that affects your business operations. The more credible information you provide to the broker-agent in the application process, the better the broker-agent can assess specific insurance needs and provide you with the best options to satisfy those needs and protect your business from loss. A broker-agent's proposal is just that, a proposal. When all is said and done it is your responsibility to make an informed decision and choose the insurance that best fits your business plan. The relationship that you build with a broker-agent is extremely valuable in this critical decision making process. An experienced broker-agent has dealt with hundreds of businesses similar to yours. Since commercial insurance can be complicated, you should feel free to discuss any terms, conditions, or concepts that are unclear to you with your broker-agent. It is part of a broker-agent's service to answer your questions and help you understand the insurance you are purchasing. As your business changes and expands you will have the necessary knowledge to purchase insurance coverage as new exposures arise. The following commercial lines of insurance cover broad areas of exposure common to most business operations: Property insurance provides coverage for property that is stolen, damaged, or destroyed by a covered peril.
Commercial Property, Inland Marine, Boiler and Machinery, and Crime are the most common commercial property coverage lines. Each of these property coverage lines is described below. Commercial property insurance can be sold separately as an Individual Line policy (referred to as a monoline policy), or it can be sold as part of a Commercial Package Policy (CPP), which combines two or more commercial coverage parts such as commercial property, general liability, and commercial auto. Permanently installed fixtures, machinery, and equipment are also insured as a part of building coverage. The limit of insurance is the estimated amount needed to rebuild your building and to replace permanently installed fixtures, machinery, and equipment in the event of a total loss. You are required under the insurance policy to fully insure the value of your buildings. If a building is not insured to value, you can be subject to a monetary penalty at the time of a loss.The type of business you operate will determine if you need to protect the personal property of others. You can choose the covered causes of loss in your property policy. Causes of loss are divided into two main categories: specified perils and open perils. You can usually request basic specified perils or broad specified perils coverage. Broad specified perils coverage adds to the list of covered perils found under basic specified perils. Earth movement (including earthquake) and flood are two common perils that are excluded under open perils coverage. Since open perils coverage offers more comprehensive protection, it is more costly than a specified perils policy. The most common policy valuation method is Actual Cash Value (ACV). Unless otherwise defined in the policy, ACV is considered to be Fair Market Value in California. There are two other methods of property valuation: agreed value and replacement cost.
Agreed value waives any coinsurance penalty and pays 100 of the stated amount (agreed upon amount) for any covered loss. Replacement cost covers the amount it takes to replace your property with new property of like kind and quality up to the limits of insurance. Like ACV, replacement cost is subject to coinsurance. The following are the most common coverage forms and endorsements used in commercial property insurance: A reporting form or renovations form allows coverage to be carried according to the stage of completion (i.e., as more of the project is completed, more value is reported, resulting in the proper amount of coverage for each stage of construction). The loss or damage must be caused by a covered peril (including loss of use). The loss must be accidental and the coverage most often is purchased for tenants in commercial buildings. Replacement cost must be in effect for Coverage C to be applied. Covers all permanently installed improvements and betterments, which cannot be removed when a tenant vacates the building. A glass form must be added for scheduled glass coverage when there is a significant glass exposure to insure. The glass form includes the number of panes, dimensions, location, lettering, and ornamentation. A separate glass deductible may be scheduled as well. This is specifically used to cover fluctuating inventory values before and during peak shopping seasons. The adjustment can be tied to the construction cost index in a regional area or a specified percentage per year. This endorsement can be very important in helping to maintain adequate coverage limits, which can protect against potential coinsurance penalties in a property loss. Business interruption, extra expense, and loss of rents and rental value are the most common time element coverages. Business interruption coverage replaces lost business income after a covered loss.