Incentives and Innovations Helping to Bring Down Insurance Claim Expenses

looking at insurance premiums

Automobile Incentives and Innovation

With insurance companies competing for a portion of the insurance industry’s money, there are some who are coming up with ways to help reduce the initial cost of insurance and the later expenses incurred.

It wasn’t so many years ago when seat belts were introduced by the automobile industry that insurance companies responded with a discount for restraining apparatus and then with another when disk brakes were invented. You may even remember discounts given for compact cars which apparently should have been cheaper to insure than a full size vehicle. This may have been true for physical damage to the car but they left drivers and occupants more vulnerable to medical expenses.

Then of course discounts for students maintaining at least a B average in school, driving less than a certain number of miles to work or school or even just using the vehicle for pleasure, defensive driving for senior citizens, longevity and locked car credits, plus discounts for having no tickets or claims were used to keep premiums down.

One very recent innovation is discounts available to a driver if he or she meets certain driving standards which are enumerated on an app on your telephone which tracks your driving habits. Example: the ad by State Farm Insurance with the lady in labor refusing to let her husband speed up so they can get to the hospital–when she adamantly tells him to not mess with her discount!!

Wildfire Defense Provision

With the thought that an ounce of prevention is worth a pound of cure, at least three major insurance companies, Chubb, Liberty Mutual, and Safeco, have signed agreements with Wildfire Defense Systems, Inc., a leading wildfire management organization with over 35 years of experience, to provide preventative measures to protect structures in the path of a wildfire.

These companies have built into their homeowner policies a provision whereby an insured can elect to take advantage of the provision of having a wildfire defense team come to the property and prep it to better withstand the threat of wildfire. Apparently there is no increase in premium to have this service, but it does require the insured to opt in to the coverage. This gives the wildfire defense team legal permission to come onto private property to do their work.

Chubb provides this service to their clients in Arizona, California, Colorado, Florida, Georgia, Idaho, Montana, North Dakota, New Mexico, Nevada, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee,Texas, Utah, Washington, and Wyoming. Service is not guaranteed to be available and they make no warranties that damage will be avoided.

Liberty Mutual and Safeco advertise service is available in California and other fire vulnerable states. The insured would need to ask their local agent if such service is available.

Wildfire Implementation

Once an insured has opted into this coverage by signing the new application for fire insurance and again at each renewal, when a wildfire scenario seems imminent, the insurance company alerts Wildfire Defense Systems as to homes which should receive the protection effort. Wildfire sends its two-man teams along with fire truck and fire equipment to the potentially affected area. These fire crews work under the discretion of government fire incident commanders, so those commanders know where the needs are. The duty of the wildfire teams is to do preventative measures, i.e., clean out gutters, tape vents closed, clear combustibles from property, and in some instances install sprinklers so when the fire comes the house has a better chance of survival.

This provision hasn’t become a major provision in other companies’ fire contracts perhaps because the service being rendered is for activities the homeowners should have done themselves. It may also be that the service is so new statistics haven’t accumulated to where cost effectiveness is known. In any event it appears to be a good public relations move on the part of the companies providing the service.

Designing homes for loss prevention

The average value of a home in the United States according to www.bankrate.com is worth $229,000 with those averages going up as much as 13.1% in the state of Washington last year. The only state showing a drop in home value is North Dakota, losing -3.8%. The volatility of those values are exposed with New York State averaging 8.0% while the Elmira region shows a drop of -3.5%. Texas shows Abilene with a -1.5% and the Sherman-Denison area up 18.4% according to the National Association of Realtors Median Sales Price of Existing Single-Family Homes for Metropolitan Areas.

The one factor which is the driving force behind this next innovation is the number of homes across America reaching the 1 million plus value. According to www.Zillow.com/blog/states-with-most-million-dollar-homes-157990/, 197 cities of more than 10,000 analyzed have a median home value of 1 million or more. Over the past year 33 joined the list and 23 more are expected to join soon. One hundred and eleven of the 197 markets are in California, and 30 million dollar cities are located in New York. These million dollar homes are found in every state, with the highest percentage being found in Rhode Island, Washington, Colorado, New Jersey, Connecticut, Massachusetts, New York, Washington, D.C., California, and Hawaii.

The innovation is offered to high end building projects of over a million dollars by American International Group, Inc. (AIG), Chubb Ltd., Cincinnati Insurance companies, Vault, a high net-worth company, and PURE Insurance to help design luxury properties in ways that mitigate disaster risk. This innovation has been around the insurance industry since 2007 when PURE Insurance offered risk specialist to help design high end projects. AIG started marketing its service as “Smart Build” in 2015 initially to projects over 5 million but have since lowered the threshold to $1 million dollars, and Cincinnati and Vault have joined the mix, looking to offer the service as a way to increase business with wealthy clientele.

“People don’t naturally think of insurance as the first place to go,” said Jennifer Naughton, head of North American Personal Insurance Risk Consulting services at Chubb Ltd. “But an insurance company can give you an advantage of the loss potential and might save you the pain of loss in the future.”

The process normally begins with an insurance risk specialist scoping out a site to assess possible concerns, perhaps densely forested area, high water table underground or nearby body of water which would expose structure to flooding. A lightning repellent system, ceramic shingles, concrete designer walls, water cistern with private fire hydrant would be in the planning. One client had his driveway altered so it could accommodate a fire truck’s maneuvers.

Summary

Insurers have paid out more than $170 billion in property losses since 2016 according to Property Claim Services (PCS), part of Verisk Analytics Inc and U.S. Bureau of Economic Analysis, and few actuaries expect the reasons for these losses, fires, hurricanes, floods and other catastrophes to ease. In fact, the amount of potential loss has prompted some insurers to get involved in the design process for lavish residential properties.

Though this service is still a tiny part of the property-casualty insurance industry, insurers and risk management industry groups expect this service to expand and even become an industry of its own. AIG reported they had 20% more projects enrolled during the first six months of 2019 than in the prior-year period. (Much of this material comes from https://fingfx.thomsonreuters.com/gfx/editorcharts/INSURERS-DISASTERS/OH001QERS818/index.html and https://www.msn.com/en-us/news/us/leave-room-for-the-fire-truck.)

With so much access to information and the ability to interpret that information, it will be exciting to see what other innovations will appear on the horizon which will help reduce or at least contain skyrocketing premiums. Perhaps robots and drones will play a role in the future.

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