To inspect or not to inspect
When underwriting a new policy or renewing an existing one, Insurance carriers used to have one option when it came to understanding the property’s current condition. A physical, on-site inspection of the property was conducted to make sure it was being properly maintained and to identify needed repairs or significant upgrades. But since so many homes did not have maintenance issues or coverage discrepancies, these physical inspections were often an inefficient use of resources. To ensure inspection dollars are properly allocated, carriers should make sure they are taking full advantage of new technology and advanced analytics. Just as technology is changing the way we live and work, new technology now allows insurance carriers to use aerial and satellite imagery, as well as interior imagery, to virtually inspect a property’s condition, making a physical inspection unnecessary in some cases. This inspection optimization approach helps reduce inspection costs, which can total more than $200 per inspection on a main street property.
So how should a carrier decide which properties to inspect as well as the best method for inspection? Most of the industry uses an experiential, decision tree-based model to select which properties need inspecting. Based on the model outputs, carriers can create rules that match the appropriate risk profile to the ideal inspection type. A property with a high risk for condition hazards might require an inspector to visit the property for a physical inspection, while a property at low-risk for condition hazards may suffice with a virtual inspection. An effective model should consider the potential for risk as well as ensure the reconstruction coverage (Coverage A) amount is adequate. It should incorporate the best of a carrier’s existing data, the most accurate property data available through content providers and the most advanced modeling techniques.
Ideally, an inspection program will use advanced analytics to determine a property’s risk and the type of inspection for which it qualifies. To supplement analytics, high-confidence pre-fill content should be coupled with granular imagery, when it is available, to provide an accurate representation of a property’s true risk. The three elements work together to enhance efficiency with the inspection program as a whole.
For example, an optimized inspection program, where a carrier could mitigate the same amount of claims for one-half the cost, would include these steps:
- Using data and advanced analytics, create a risk score for every property. Ignore the lowest 20 percent risk—which is not where inspection dollars need to be spent—so that the number of inspections for riskier properties can increase.
- Collect current, high-quality imagery—usually available 50 percent of the time—from an appropriate source. Next, leverage optimized cost infrastructure, such as a call center operation, to collect information from imagery, and automatically couple it with high-confidence pre-fill data to create a complete property record.
- Where high-quality, current imagery is unavailable and the risk score is high, 3send an inspector to physically inspect the property.
Table 1 shows the potential benefits of an optimized inspection program that can mitigate roughly the same amount of claims for less than half the cost. Using a sample volume of 30,000 properties, a non-optimized inspection program that requires 100 percent of properties to have boots-on-the-ground inspections would cost $900,000 (assuming $30 per inspection). Compare that with an optimized inspection program that reduces the number of properties requiring boots-on-the-ground inspections, and the overall cost drops to $420,000.
While using digital imagery to inspect properties is cost efficient and saves resources, it is still a relatively new practice. There isn’t currently a complete solution available that provides the quantity and quality of imagery with the level of detail needed to completely eliminate physical inspections.
Even though the industry is still working toward complete virtual inspections, it is important for insurance carriers to adopt and leverage the technology that is available today. Incorporating new inspection technology as it becomes available with existing programs can be a competitive advantage that doesn’t have to overwhelm budgets or resources and can bring carriers one step closer to a cost-efficient and effective analytics solution.
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