Times are changing in the insurance industry: lines of business are diversifying, risk analysis is becoming more complex, and environmental changes are influencing carrier operations. Certain regions, including densely populated areas, are being labeled high-risk due to increased frequency of severe weather events forcing carriers to raise prices or pull business entirely.
In the face of this shift, carriers are adapting through a more proactive approach—focusing on insurance loss control. Insurance loss control is a risk management practice that aims to reduce the likelihood and severity of insurance claims by identifying risks and developing strategies to mitigate them. When done right, it can help protect policyholders from dealing with more significant losses in the event of claims and reduce costs for both parties. Let’s take a closer look at some examples of loss control and the role that carriers and policyholders must play to achieve an amicable solution for all.
Common loss control
An easy way to understand insurance loss control is through a common example involving property insurance. Most office buildings will have fire detection tools installed, typically consisting of smoke detectors, visible fire extinguishers, and an overhead sprinkler system. They might also include placards showing suitable exits in the event of an evacuation and hold annual safety meetings for tenants. Those are all examples of insurance loss control—infrastructure and actions intended to help mitigate damage in the event of an emergency.
As with most examples of loss control, the benefits are shared between carriers and policyholders. In this case, carriers receive some protection against large claims, and the policyholders get peace of mind knowing that, in the event of a fire, they have a robust system in place to ensure occupant safety and minimize asset damage. Due to the mutually beneficial nature of loss control, carriers will sometimes offer incentives for policyholders willing to take preventive measures with regards to their covered assets.
Pushing for proactivity
Loss control isn’t just a way to increase potential profits for carriers; it provides reassurance and safety for policyholders as well. These practices are a collaborative effort that enables both parties to put themselves in the best possible position if and when a loss occurs. Carriers can offer incentive programs that effectively reduce their risk exposure while giving policyholders more affordable coverage options. Some incentives may require buy-in from the policyholder at an upfront cost, but the upside is often realized through reduced premium payments.
A popular incentive for loss control is seen in auto insurance, where carriers offer reduced rates for drivers who download the carrier’s app and allow it to track their driving habits. The app creates a profile of the driver over time and makes recommendations for how they can practice safer driving. In exchange, if drivers complete the required time—such as two weeks—then their policy is discounted. The carrier gets a safer driver behind the wheel while the driver gets a modest rate reduction, with both parties benefiting from the lowered risk of an accident. Such an experience requires buy-in from both sides; carriers to offer meaningful discounts that incentivize policyholders to take action, and policyholders to be open to new, preventive measures that may benefit them in the long term. And with the diverse range of insurance coverage, loss control methods continue to expand.
Innovative loss control measures
- Water leak detection: For both personal and commercial lines, policyholders are installing systems that alert them to potential pipe leaks and can even turn off the water until manually restarted.
- Smart roofs: As a staple of home insurance policies, roofs have offered avenues for coverage discounts and long-term benefits for decades. The latest innovation comes in the form of smart roofs, which utilize Wi-Fi connected sensors to detect potential leaks, snow loads, drain blockage, and other damages. While the majority of use cases so far are in commercial properties, expansion into homes is inevitable.
- Self-healing, self-cleaning roofs: Another notable advancement in roofing includes polymer-based thermoplastic materials that can continuously seal minor damages when exposed to heat. Additionally, self-cleaning roofs are treated with a coating that inhibits mold and mildew growth and repels dirt and debris. These innovations have promising benefits in extending roof lifespans, reducing maintenance costs, and withstanding hail and high winds.
- Wildfire detection and mapping: It may not result in a discounted rate, but advancements in fire detection and firefighting could make insurance operations in certain regions more plausible, resulting in continued coverage for millions of people. Drone mapping, AI detection systems, and improved communication channels are not only reducing the loss of life during wildfires but mitigating potential damage and even preventing fires from getting out of control.
- Advanced building materials: Builders are increasingly implementing new technologies that have been developed to combat extreme heat and prevent flames from spreading. This includes coatings designed with advanced nanotechnology that can be applied to many different surfaces, fiber cement siding, fire resistant windows, insulated concrete forms (ICFs), and smart fire detection systems that can detect fires quickly and extinguish or suppress them.
- Flood-ready infrastructure: Floods cause billions of dollars' worth of damage every year in the US alone. Managing such a large volume of water in such a short time demands preparation, and cities are trying new solutions to improve their preparedness and, as a result, making the surrounding area viable for long-term insurance operation. These include smart drain systems that can identify water flow and activate pumps and floodgates to control local levels, detention reservoirs designed to temporarily hold stormwater and release it slowly over time, and advanced modeling to predict sudden storms and potential floods well before they happen.
- Hideaway homes: While still in the prototype stages, one business is exploring the potential of homes built on hydraulic systems that could lower the entire estate underground in the event of extreme weather, in as little as 15 minutes.
- Community-based catastrophe insurance (CBCI): An interesting development being explored in insurance policies, CBCI aims to lower insurance premiums for collective groups that take on the responsibility of hazard mitigation themselves. Covered perils may include earthquakes, flooding, hurricanes, or fires and specifically target low-income communities to help make insurance coverage more accessible.
Carriers are reaching a crossroads due to the increase in extreme weather events around the globe: They can either retreat and remove valuable insurance protection from customers or adapt by implementing new and creative loss control strategies which may have positive impacts for their business and customer base. These methods are not an exhaustive list, and they may not have a direct financial benefit in the short term. However, they represent critical long-term investments to maintain important insurance coverage for customers in high-risk areas while keeping loss ratios for carriers low. Carriers that adopt innovative loss control measures can also differentiate themselves in a reactive market.
Building a better way forward
Carriers and policyholders alike are becoming increasingly proactive with insurance loss control, investing in newer technologies and advanced systems for quicker, more accurate response. It’s not just the systems themselves, but the technology carriers use to mitigate claims that helps all parties involved. To that end, having a comprehensive insurance document management system is critical, be it for tracking receipts, sharing inspection reports, or uploading photos for proof of mitigation efforts. And with more intelligent workflows and automated processes, your teams can handle claims quickly and do more in less time. Whether it’s incentive programs promoting loss control or investing in the right document management solution, the more proactive carriers can be, the better the result for them and their customers.
For insurance agencies, carriers, or MGA professionals, the right technology can make all the difference. Vertafore has been the leader in modern insurance technology, delivering best-in-class InsurTech solutions that connect every point of the insurance distribution channel for over 55 years. Explore what’s possible with Vertafore.