With Underwriting Capacity at a Premium, Clean, Usable Risk Exposure Data Has Never Been More Essential

By: | July 27, 2023

Aleacia Perdomo, CIC, CRM, is the VP Managing Director at Archipelago. Aleacia drives global broker distribution and leads a team of relationship leaders, while overseeing marketing strategies.

The commercial insurance industry is facing an unprecedented moment. Rates are at record highs, insurers are offering smaller and smaller amounts of capacity — if they offer any at all — and brokers, underwriters and property owners alike are trying to do more with less, in many cases being forced to actively retain risks.

This is unfolding at the same moment that climate change is no longer theoretical but instead seen in each season’s extreme weather events, which are increasing in both intensity and frequency. A warmer climate means more intense hurricanes for the Southeast, more intense tornadoes for the Midwest and, now, unbelievable snowpack below the foothills of Southern California.

Capacity is sparse, total cost of risk (TCOR) is escalating at an exponential rate (and for less limit and higher retentions), and that’s if you can get capacity at all.

Premiums are being pushed to unsustainable levels. Something has to give, but we can rest assured it won’t be the risk events themselves.

Insurance brokers in particular are feeling the strain, communicating tough messages to clients and having to bring three to four times the number of participants and carriers to programs in order to fill capacity.

Captives are becoming a necessary lever to meet the unique market dynamics clients are facing, rather than a niche alternative to coverage. Reimagining TCOR and even the rather binary approach of deciding to keep more capital on hand to address risks if needed are becoming part of the conversations brokers are having.

Finite risk agreements and parametric policies are rising trends. The moment is begging for anything that can help relieve even the slightest bit of pressure from the ecosystem.

These tactical measures can help to adjust the dynamics of the problem; nevertheless, the core nature of the problem remains. There are other strategies, however, that can improve outcomes and help smooth the rough waters the commercial insurance industry is facing.

Underwriters (with Data) Are Your Best Friend

Underwriters are seeing unprecedented volume and need for capacity, and it’s affecting all industry verticals.

Whether for residential, retail, manufacturing, public risk, warehouse or something else, there is fierce competition for capacity and there’s not enough to go around.

Let’s explore a hypothetical of two different companies, Alpha Corporation and Beta Industries, to better understand.

Alpha Corp is a warehousing and distribution firm with a portfolio covering all major metros across the continental U.S. Beta Industries is a multifamily operator with a concentration of luxury high- and mid-rise buildings in highly desirable coastal towns up and down the East Coast of the U.S.

Alpha Corp doesn’t have a great culture around capturing, transferring and retaining updated data about their portfolio. They have what one would call the basics for COPE data, but what they provide to their broker partners often leaves much to be desired. On average, Alpha shares between 16 and 20 data points per building and rarely provides documentation to support its figures.

Alpha Corp isn’t taking account of what they’re losing in their poor data culture.

When underwriters see building information with 16 to 20 data points, they are inclined to assume the worst and fill in the blanks with the least favorable assumptions, increasing the end cost of coverage. Additionally, if said data sets are rife with unclear, unverified data, Alpha Corp might as well withdraw entirely, as their lacking data set will be turned down anyway.

Underwriters have to pick and choose how they utilize their capacity, and they want to put their chips on the risks they can justify. Those with higher data confidence and source documentation will win out every time. Those with low data confidence may not even find coverage.

Beta Industries, on the other hand, has been meticulous in the outline of their COPE data.

They have not only the baseline data but 80 data points including the height of the first floor, the HVAC equipment bracing system on the roof and the roof anchoring system of their buildings, giving Beta the advantage of not making their underwriter do the guesswork of how their building might perform when the next CAT 3 hurricane runs up the coast from Florida to South Carolina.

Their underwriter has fewer questions, reducing back and forth, putting Beta on the path to finding markets interested in filling capacity for what is, altogether, a portfolio that can be understood with greater clarity.

Clear, organized and granular data is your friend. Not only does it put you at the top of the list for service with underwriters, but it makes the work of everyone in the process more seamless. And though rates are not 100% under any one person’s control, it can certainly be said that taking this approach puts an organization in the best possible position for the situation we are in. &

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