How do you flag high-risk profiles in underwriting?

“Insurance is a financial animal,” said Frank Jones, an independent insurance agent and partner at Mints Insurance in New Jersey. The constant management of costs associated with claims and the ongoing desire to offer competitive rates to the highest value client whilst avoiding the highest risk, is a balancing act that could cost or earn millions.

This “profiling” in underwriting is a critical aspect as companies all compete to develop the best algorithm and analysis to determine the largest risk from clients.

What does profiling in underwriting look like?

A key part of the underwriting process is the “in good faith” sharing of information between the potential client with the insurer. This information will then be used to calculate an offer. A group of vehicle insurer respondents in a survey ranked their most to least valuable factors when building profiles;

  1. Age of the vehicle owner, or any person who is expected to drive the vehicle
    Using broad age statistics to help understand the risks of certain age groups is considered the most important factor
  2. Past accident information (not claim data)
    History being a great dataset when predicting the future, insurers agree that historical accident data is critical in gauging risk
  3. Name and address of the vehicle owner
    Often overlooked from outside the industry, knowing a drivers name offers blacklisted or flagged risky behaviour to become known and taken into consideration. Additionally the address allows a territory rating to be applied. This geographical analysis maps risk by region and how likely a person may be affected by it. 
  4. Vehicle details
    The cost, type and style of the vehicle are all relevant when building the profile and the potential cost to the insurer.
  5. Insurance history – specifically refusals of cover
    Knowledge of past refusuals provides insurers with an unbiased source of information, and also alerts the insurer about a proposer‘s attitude and behaviour when involved with insurance.
  6. Driver profession / employment
    Used mainly to forecast mileage / wear & tear of the vehilce, the profession of the driver can help offer insight to the nature of the vehicle usage and the possibility of higher costs. 
  7. Overnight storage of vehicle
    Determining how vulnerable the vehicle is to theft or break-ins.An important factor when developing a risk factor for the client.

The above is just a guide of the most commonly used and highest valued aspects, each insurer will have their own unique approach to the underwriting profile building process. With the goal of uncovering high-risk profiles, we can look at some common traits.

The most common traits of high-risk profiles

High-risk drivers share some similar characteristics that have a tendency to lead to similar results allowing insurers an opportunity to flag potentially risky behaviour.

The drivers have a tendency to be aligned with thrill seeking behaviour and competitiveness. Additionally, they frequently consider their driving abilities as “above-average”, meaning they are more likely to be overly confident on the roads or disregard some laws.

These traits have been found to lead to a high-risk driver having the one or some of the following on their record;

  • A major violation, such as speeding or a DUI conviction.
  • Multiple, frequent minor violations, such as tickets or accidents.
  • Multiple at-fault accidents in the past three to five years.
  • Driving violations that led to accumulating points on your record.

Whilst not an exhaustive list, there are other common trends such as age and gender groups that can also help insurers identify potentially high risk drivers based on character traits or their records. 

How can these high-risk profiles be identified?

By combining relevant data points such as age, gender, location and driving record, insurers are able to build specific and relevant profiles that can help predict potential behaviors or risk to the insurer. With each data point fed back into their process, insurers can continue to learn and improve their profile building to become more and more accurate.

Insurance is a business that thrives on a great ability to combine enormous datasets to determine potential risk. Considering driver accidents, geographical analysis, driver ability and age are just a few factors needed to track, build and consider when building profiles of potential clients.

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