Rigorous pricing research can eliminate the risk of overpaying or underpaying property loss claims. Scott Beatty details how data analytic developments are helping insurers to verify rates.
As the economic tempest continues to rage, it is crucial for insurance companies to exercise a higher degree of control over the quality of pricing data they use to estimate loss claims.
Over the past few years, trends for UK property industry pricing rates have been rather volatile, and the ability to track these changes is an invaluable resource, as insurers work to ensure they are paying the right amount to policyholders that have suffered a loss. Developments in pricing research and database analytics provide insurers with a proven means to determine the fair market price for building costs, which can help guide critical business decisions, enhance customer services and safeguard long-term financial stability.
Thoroughly researched pricing rates for building materials, plant and labour play an important role in insurers' work, and form the foundation upon which good risk management and loss estimating is built. An insurance group may boast superior claims handling practices, but if it doesn't keep a close watch on the quality and currency of the rates it uses to calculate loss estimates, it risks overpaying or underpaying the claims it handles. Understandably this can lead to widespread customer dissatisfaction. So, it is critical for insurers to establish effective methods that verify rates appropriately match replacement costs.
A challenging task
Tracking all the costs of construction materials and labour is a challenging task because these rates can change rapidly. Many factors, such as supply and demand, can influence construction costs, and insurers that monitor these developing trends — and make adjustments based on this data — are better able to appropriately estimate replacement costs and handle important business decisions.
In addition to accounting for sudden price fluctuations, insurers need to adopt methods that maintain consistency in pricing research. This does not mean rates in one region should match rates used elsewhere, rather that these should be researched, analysed and utilised in a uniform manner to reduce the likelihood of misunderstanding, customer dissatisfaction and potential disputes. Data analytics and research methodologies enable insurers to resolve these issues and better serve customers by writing estimates that accurately represent local, current building costs.
Innovations in methodologies and technology form the basis for highly scientific research processes that give insurers a strong degree of confidence in the quality of rates used to estimate loss claims. Such approaches include constantly surveying material and labour providers in local areas throughout the UK to learn what rates are currently being charged for specific building products and services.
Analytical software can also be utilised to mine live claims estimates as they are processed to identify various market pricing data points and pricing variances. Once collected, the survey results and claims data are combined and analysed to determine where competing market prices are converging and to identify a price that best reflects what is happening in the market.
Valuable checks and balances
Claims estimating software, powered by this type of information, provides insurers with valuable checks and balances that ensure quoted unit prices are neither too high nor too low. It promotes reliability, transparency and consistency across the insurance group's entire book of business and allows adjusters to make timely adjustments to better handle the amount of risk they cover.
Moreover, this type of claims estimating software can allow users to quickly adjust prices to match actual site conditions or to substitute their own in-house rate schedules when deemed appropriate to engender flexibility and versatility.
Having access to current, reliable information empowers insurers to make sure they are paying the right amount for settled claims. For example, an assessor in England could track trends in the cost of plasterboard materials and then adjust price lists to make sure policyholders are receiving repair estimates that accurately reflect local costs. Not only does this improve the reliability of an insurance group's estimating capabilities, it also improves customer satisfaction.
Many uncertainties exist about what the future holds for the property industry or what trends will unfold in the years to come. But using rigorously tested, verifiable pricing data imbues insurers with an added measure of confidence that they will be able to protect their customers — and their long-term stability — regardless of changes that occur in the market.
Scott Beatty is team leader for pricing data services at claims estimation and management solutions provider Xactware
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