Ill. Director Looks at New Options for Insurers to Serve Urban Markets

November 28, 2006

Regulators want to make sure that insurers are serving the urban market appropriately, according to Illinois Insurance Director Michael T. McRaith, who spoke at a recent workshop sponsored by the Urban Insurance Partners Institute (UIPI), a nonprofit insurance industry organization.

The workshop focused on a UIPI underwriting study that will test a wide array of both traditional and new sources of data, together with predictive modeling. UIPI believes this study may lead to an underwriting approach that is more accurate.

“Insurers should support the UIPI underwriting study with data and funding,” McRaith added. “The fact that you have three state regulators at today’s workshop shows the level of interest that regulators have in urban markets. This study may be able to help you expand your business in urban markets, and the Illinois division looks forward to seeing it completed.”

McRaith explained that in Illinois the insurance division does not receive or review the actuarial justification for rates. However, the rates themselves, rules for applying the rates, and tiering guidelines must be filed with the division, and are considered public.

The study offers insurers a private analysis of their policy data, using new data sources that have just recently become available for underwriting and that have proven to be predictive in preliminary tests, along with other traditional data. The study also offers participating insurers confidential results, as well as a transparent computer model that insurers could file with insurance departments.

Texas Insurance Commissioner Mike Geeslin and Pennsylvania Insurance Commissioner Diane Koken also spoke at the workshop. All three regulators emphasized that any insurers which are considering adopting new approaches, such as data mining or predictive modeling, should keep their insurance departments fully informed, and carefully consider the impact of any changes on consumers.

Other speakers addressed the data and information needs of urban markets insurers. “Although we were ultimately successful,” said Ross Miller, president of Hanover Fire & Casualty Insurance Company, “we found there were significant differences in the marketing and underwriting approaches we had to take in different urban areas. Insurers can benefit from any information that offers them a more detailed understanding of urban areas.”

At the Nov. 9 workshop, attendees also heard from the Federal Reserve Bank of Chicago that national immigration is at its highest level since 1930, constituting 12 percent of the U.S. population. Two-thirds of immigrants live in just six states — California, Texas, New York, Florida, Illinois and New Jersey. However, recent arrivals also favor Arizona, Nevada, North Carolina, Georgia and Colorado, the Federal Reserve Bank of Chicago noted.

According to Suzanne Reade, UIPI president, the growing number of foreign-born suburban residents means that even in traditional markets, insurers must find new underwriting tools that will help them successfully underwrite diverse markets. For example, in suburban areas of Chicago, 81 percent of new homeowners between 2000 and 2005 were immigrants.

Workshop speakers detailed how this growing population uses financial services differently, and how new data sources, such as those used in the UIPI study, can help underwriters better understand this population’s risk characteristics.

For more information, contact Suzanne Reade at (773) 880-8780 or visit

Source: Urban Insurance Partners Institute

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