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7 reasons why geospatial-based property ratings should replace historical territory ratings

Decreased profits can stem from a lack of granular, accurate information about potential hazards and exposure to loss at each insured location.

By Tammy Nichols Schwartz, CPCU | January 23, 2023 at 01:42 AM
Although traditional territory-based ratings have been a part of the actuarial tool kit for decades, they poses major issues and challenges to product managers, actuaries, underwriters and information technology teams. One key reason why is that most perils are not correlated with ZIP codes, state or municipal boundaries, yet territories are often underwritten and defined by these boundaries. (Credit: garrykillian/Stock.adobe.com) Although traditional territory-based ratings have been a part of the actuarial tool kit for decades, they pose major issues and challenges to product managers, actuaries, underwriters and information technology teams. One key reason why is that most perils are not correlated with ZIP codes, state or municipal boundaries, yet territories are often underwritten and defined by these boundaries. (Credit: garrykillian/Stock.adobe.com)

The P&C insurance industry’s combined ratio is forecast to worsen to 105.6% from 99.5%, according to the Insurance Information Institute. Over the past several years insurers have been teetering around the edges of profitability. The industry must find better ways to assess, underwrite and price risk — and more accurately select and price policies in line with the actual risk of a property.

Growing losses, in part, can be attributed to the frequency and severity of large natural disasters — and population shifts to more catastrophe-prone areas. However, decreased profits also stem from a lack of granular, accurate information about potential hazards and exposure to loss at each insured location.

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