Leveraging Smarty's address intelligence and geocoding tools to mitigate insurance losses

The U.S. homeowner’s insurance segment is facing unprecedented challenges, marked by the worst underwriting results since at least 2000. According to a recent report by AM Best, the segment experienced a staggering $15.2 billion underwriting loss in 2023, more than double the losses seen in the previous year. They credit this dramatic increase in insured losses primarily to population migration into areas where weather-related events occur more frequently, coupled with rising urbanization and development in regions susceptible to natural perils.

As insurers grapple with these escalating risks, there is a pressing need for innovative solutions that enhance risk assessment, improve data accuracy, and streamline claims processing. Smarty's address intelligence and geocoding tools can be a major factor in recouping costs when underwriting new policies. By leveraging advanced technology to verify and enrich address data, insurers can mitigate underwriting losses, better manage risk, and ultimately improve their bottom line.

Here are several of the key factors contributing to 2023's loss figures:

• Population migration to high-risk areas: States like California, Florida, Georgia, North Carolina, Texas, and Washington have seen significant population growth between 2010 and 2020. These states, which accounted for 53% of the country’s population growth, are also highly susceptible to natural disasters such as hurricanes, severe convective storms, and wildfires. David Blades, associate director, Industry Research and Analytics at AM Best, notes, “Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms or even wildfires.”
  
  Smarty’s precise geocoding technology can accurately identify properties located in high-risk areas prone to natural disasters. By leveraging detailed geospatial data, insurers can more accurately assess the risk associated with new policies. This enables them to adjust premiums and underwriting criteria accordingly, thereby reducing potential losses.
   
• Increased urbanization and development: The rise in population in these regions has led to a boom in real estate development, increasing the number of insured properties. This increase, in turn, has escalated the risk exposure for insurers, as more properties are now situated in high-risk areas. Christopher Graham, senior industry analyst at AM Best, explains, “A growing population means an even larger rise in real property development and thus in insured values.”
  
  
  
  As urbanization leads to more properties in high-risk areas, Smarty’s address verification and geocoding tools can help insurers keep track of new developments and ensure that all properties are accurately documented and assessed for risk. By integrating Smarty's solutions, insurers can stay updated on the latest property developments and adjust their coverage and pricing strategies accordingly.
   
• Volatile combined ratios: Insurers writing homeowner’s coverage in regions prone to natural disasters have recorded combined ratios well above breakeven. For example, the South Atlantic and Southern regions posted combined ratios of over 92% during the past decade, significantly higher than the more stable New England region, which averaged 79.3%. The report states, “The direct combined ratio in 17 states in 2023 surpassed the breakeven threshold of 100.”
  
  Smarty's tools can help stabilize combined ratios by improving the accuracy of address data and risk assessments. Accurate address data ensures that properties are correctly classified and assessed for risk, reducing the likelihood of underwriting errors that can lead to increased claims and higher combined ratios.
   
• Impact of climate change: Climate risks have further complicated the underwriting landscape. The frequency and severity of weather-related events are on the rise, exacerbating insurers' losses. This has led to higher combined ratios and increased volatility in the segment's performance. The report indicates, “This increase is more evidence of the impact that climate risks and population migration have had on the homeowners segment’s results.”
  
  With climate risks on the rise, Smarty’s advanced geocoding can help insurers better understand and predict the impact of natural disasters on insured properties. Using historical weather data and predictive analytics, insurers can anticipate potential risks and adjust their coverage options to better protect against future losses.
   
• Regulatory challenges and reinsurance capacity: Restrictive regulatory environments in several large, catastrophe-prone states have compounded the difficulties for insurers. Additionally, tightening capacity in the reinsurance market, stemming from the unfavorable underwriting results, has further pressured primary carriers.
  
  Smarty’s solutions can help insurers navigate restrictive regulatory environments by providing accurate, up-to-date address data and risk assessments. This timeliness can facilitate compliance with regulatory requirements and help insurers make informed decisions about their market strategies. Additionally, Smarty’s data can support reinsurance negotiations by providing clear, precise risk assessments demonstrating an insurer's proactive risk management approach.

Address intelligence and geocoding tools offer robust solutions to the challenges faced by the homeowner's insurance segment. They help mitigate the risks and losses associated with population migration to catastrophe-prone areas. By leveraging innovative address intelligence and geocoding tools, insurers can enhance their risk assessment capabilities, improve data accuracy, and ultimately recoup costs lost due to underwriting inefficiencies and natural disasters.