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

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

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