Personal lines insurers could be expected to start offering more granular pricing, depending on property risk, an actuarial firm says.
Melville Jessup Weaver released a report that looked at how insurers priced for earthquake, flood and tsunami/coastal risk in Hawke’s Bay.
It found while competition was heating up, with new entrants wanting to cherry-pick the best risks, larger insurers were only leaving room for more granular pricing.
Author Craig Lough said, while there were higher and lower premiums offered, there seemed to be no difference in premiums directly related to a property being in a flood plain.
“Ironically, the average premium for our standard property in the low-risk areas was slightly higher than the average for that same property in the high-risk areas. That could be the result of other risk factors unrelated to [flood, earthquake and coastal risk], for example fire or theft. Although the inconsistent variation in market pricing suggests it may simply be random anomalies.”
There was a social risk and a PR risk to insurers offering very different premiums to different customers, he said. “Insurance is a pooling of risk and in some respects, it’s good for society if there is less differentiation of risk.”
But big data and other influences could force insurers to adopt new risk-pricing strategies.
“I think almost certainly that will change,” he said.
How granular insurers would become with their pricing would depend largely on competitive pressures.
If a new operator came into the market with a very granular model, it would push the others to follow suit. “Perhaps in the same way that the Australian insurers scrambled to establish their flood risk maps a few years ago, no one wanted to be the last man standing with a pool of high risk properties on their books.”
