A classic example of the yo – yo effect of cash flow underwriting. Also a good example of the failure of carriers to monitor where the risk is located, and its relation to surrounding risks that might be insured by the carrier. Concentration of exposures leads to larger risks. Don’t try and write all of the houses in a certain area, pick and choose and spread your risk. remember the old Sanborn maps. I started as a mapping clerk. It was my job to inform the underwriter if “we” had any insured exposures. Did we insure the next door building? What was the construction and protection rating of the submission? Most underwriters don’t even know what the different construction classes mean. Here’s what is going to happen. Premiums will go up and carriers might lose some market share. Then management will see the premiums available, and get greedy. Premium dollar underwriting. The first line of defense against improper risk selection was the “special agent”. He/she and the agent, would actually put eyes on the risk. What looks good on paper is not necessarily so, and also the reverse. Property insurance is NOT difficult. It just takes a common sense approach.
Retired Risk Manager – You speak of the “failure of carriers to monitor where the risk is located…” yet the example from your days as a mapping clerk clearly evidences how out of touch you are with the current modeling that takes place…
EVERY location, regardless of the assigned underwriter, is entered into a system that automatically pulls the Construction Class (yes, UWs know what that means) in addition to the rest of COPE – including the External Exposure aka “do we insure the next door building”. It’s naïve to think that carriers, who are responsible for billions of dollars in this market, aren’t familiar with or analyzing what is considered ‘Insurance 101’.
Property insurance IS difficult/complex – if that weren’t the case, human underwriters wouldn’t exist and agents/brokers wouldn’t be needed to educate risk managers. If you still disagree, you should consider consulting PE firms on where to deploy their capital…
I’m curious to know about the system that automatically “pulls the Construction Class in addition to the rest of COPE”. What is that system? ISO only has that information on risks that are actually inspected and specifically rated. There may be something I’m not aware of.
I’m with you, Perplexed. I know of no such system that automatically pulls that detail. Does it also do years of construction, number of stories, mixed occupancy, converted occupancy, electrical upgrades, the list goes on. I’d love it if a system could actually do this. Even if if just COPE, that would be fantastic. What’s it called?
MSB’s system can pull some of this information, especially in Texas where square footage, construction type, year built, number of stories are all in appraisal district databases. I’ve got a few insurance companies that prefill that information, but it’s got to be reviewed for accuracy of course.
December 27, 2019 at 10:30 am
Captain Planet says:
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I’m sure that may work for some sectors, but I have found MSB is awfully far off when it comes to the agribusiness industry. There aren’t any BUR reports for that industry, either.
January 2, 2020 at 1:27 pm
Former UW says:
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I’ll clarify in saying the system mentioned is proprietary to a ‘large, multinational insurance carrier’, but know that other large carriers have similar systems as well based on conversations with various underwriters. Now if you’re working with B-rated markets… they may not have such an automated system in place, but certainly a manual workflow would be in place. Ask your UW about their ‘COPE System’ and I’m confident they will respond with something similar.
I’d 100% echo “CC’s” comments below – there are some underwriters out there that are willing to quote with a nearly blank application, and would then be more inclined to agree with “Retired RIsk Manager’s” position, but those are the exception to the rule.
I couldn’t agree more, Former UW. It is awfully presumptuous and borderline egotistical to assume that property underwriters don’t know how different construction classes should affect underwriting. Whether the information is automatically pulled by a system or manually pulled from an application is irrelevant.
I will say that I have seen carriers quote risks off of mostly blank applications, making assumptions about all of the COPE info for the sake of convenience. Not thoroughly vetting this information prior to binding is what will get carriers into trouble.
Even here in Florida, where recent experiences point to more sound practices, have we send very soft market pricing and underwriting for commercial (non-residential) properties. Warehouses, office and mercantile buildings have seen their premiums fall over the last 10 years because of competition and cheap reinsurance. Looks like the party might be over but I just did an older, coastal South Florida self storage warehouse and the rate was around 80 cents including business income, extensions, A, B, and C L&O, blanket form, etc. so maybe the party is still on.
Tiger, I think that ours is a capacity issue as much as anything and as long as capacity is plentiful, comp rates decreasing* and no biblical cat losses occur, I’d guess that property will remain soft in Florida.
A classic example of the yo – yo effect of cash flow underwriting. Also a good example of the failure of carriers to monitor where the risk is located, and its relation to surrounding risks that might be insured by the carrier. Concentration of exposures leads to larger risks. Don’t try and write all of the houses in a certain area, pick and choose and spread your risk. remember the old Sanborn maps. I started as a mapping clerk. It was my job to inform the underwriter if “we” had any insured exposures. Did we insure the next door building? What was the construction and protection rating of the submission? Most underwriters don’t even know what the different construction classes mean. Here’s what is going to happen. Premiums will go up and carriers might lose some market share. Then management will see the premiums available, and get greedy. Premium dollar underwriting. The first line of defense against improper risk selection was the “special agent”. He/she and the agent, would actually put eyes on the risk. What looks good on paper is not necessarily so, and also the reverse. Property insurance is NOT difficult. It just takes a common sense approach.
Retired Risk Manager – You speak of the “failure of carriers to monitor where the risk is located…” yet the example from your days as a mapping clerk clearly evidences how out of touch you are with the current modeling that takes place…
EVERY location, regardless of the assigned underwriter, is entered into a system that automatically pulls the Construction Class (yes, UWs know what that means) in addition to the rest of COPE – including the External Exposure aka “do we insure the next door building”. It’s naïve to think that carriers, who are responsible for billions of dollars in this market, aren’t familiar with or analyzing what is considered ‘Insurance 101’.
Property insurance IS difficult/complex – if that weren’t the case, human underwriters wouldn’t exist and agents/brokers wouldn’t be needed to educate risk managers. If you still disagree, you should consider consulting PE firms on where to deploy their capital…
I’m curious to know about the system that automatically “pulls the Construction Class in addition to the rest of COPE”. What is that system? ISO only has that information on risks that are actually inspected and specifically rated. There may be something I’m not aware of.
I’m with you, Perplexed. I know of no such system that automatically pulls that detail. Does it also do years of construction, number of stories, mixed occupancy, converted occupancy, electrical upgrades, the list goes on. I’d love it if a system could actually do this. Even if if just COPE, that would be fantastic. What’s it called?
MSB’s system can pull some of this information, especially in Texas where square footage, construction type, year built, number of stories are all in appraisal district databases. I’ve got a few insurance companies that prefill that information, but it’s got to be reviewed for accuracy of course.
I’m sure that may work for some sectors, but I have found MSB is awfully far off when it comes to the agribusiness industry. There aren’t any BUR reports for that industry, either.
I’ll clarify in saying the system mentioned is proprietary to a ‘large, multinational insurance carrier’, but know that other large carriers have similar systems as well based on conversations with various underwriters. Now if you’re working with B-rated markets… they may not have such an automated system in place, but certainly a manual workflow would be in place. Ask your UW about their ‘COPE System’ and I’m confident they will respond with something similar.
I’d 100% echo “CC’s” comments below – there are some underwriters out there that are willing to quote with a nearly blank application, and would then be more inclined to agree with “Retired RIsk Manager’s” position, but those are the exception to the rule.
I couldn’t agree more, Former UW. It is awfully presumptuous and borderline egotistical to assume that property underwriters don’t know how different construction classes should affect underwriting. Whether the information is automatically pulled by a system or manually pulled from an application is irrelevant.
I will say that I have seen carriers quote risks off of mostly blank applications, making assumptions about all of the COPE info for the sake of convenience. Not thoroughly vetting this information prior to binding is what will get carriers into trouble.
Even here in Florida, where recent experiences point to more sound practices, have we send very soft market pricing and underwriting for commercial (non-residential) properties. Warehouses, office and mercantile buildings have seen their premiums fall over the last 10 years because of competition and cheap reinsurance. Looks like the party might be over but I just did an older, coastal South Florida self storage warehouse and the rate was around 80 cents including business income, extensions, A, B, and C L&O, blanket form, etc. so maybe the party is still on.
Tiger, I think that ours is a capacity issue as much as anything and as long as capacity is plentiful, comp rates decreasing* and no biblical cat losses occur, I’d guess that property will remain soft in Florida.
*for those carriers that write WC also.
Don’t forget food and ag risks. Cat or non-cat. 50% rate increase is almost a blessing at this point in the market! Slight exaggeration but not much.