Is homeowners insurance a commodity? That question has been a frequent topic of debate in the industry. But whether it is or not, hardly anyone can dispute that the homeowners insurance market can be highly competitive. For most insurance buyers, price is often the No. 1 factor when making a purchasing decision. In other industries, the way to succeed in a highly competitive market is often through volume: The more you sell, the more profitable you'll likely be. But for homeowners insurers, that may not be an option. In fact, that approach can quickly lead to bankruptcy if poor underwriting decisions cause excessive claim losses.

The key toward winning in the homeowners insurance marketplace is strong growth coupled with a lower loss ratio. That's usually easier said than done. However, one way for insurers to help achieve that goal is to incorporate by-peril rating—informed by building characteristics—into their rating plans.

Rating by peril is much the way it sounds: developing a different rate based on the risk to the property from different perils. For example, a property in Minnesota may be more exposed to hail risk than one in Florida, where wind risk may be a greater concern. With by-peril rating, a carrier can build a policy quote based on the risk of as many as nine individual perils, including water (weather-related), water (nonweather-related), wind, hail, lightning, fire, liability, theft/vandalism and all other perils.