If you have tried to purchase mortgage insurance recently, or better yet, life insurance, you know that certain data analytics requirements are a given.
The pricing models can’t start without height, weight, cholesterol level, blood pressure, and many others; just for a maximum risk of perhaps $1,000,000. Why then can a commercial contractor buy significantly more insurance coverage with far fewer required data points. Sure, you probably need to provide a loss history and financial statements, but those requirements have been the same for 25 years or more. What about other available information that might be able to help better predict the potential for a claim. Unlike in the case of life insurance, today’s commercial insurance market does not yet expect a modern set of data that could predict with far more certainly, the potential for a claim.
Seth Hausman – Managing Director of Kraus-Anderson Risk Innovation
That is about to change. The commercial insurance industry is currently down a high speed road towards improved predictive analytics and increased data driven pricing decisions. Sure these models exist today, but the level of detail and amount of data available soon to be required, is rapidly increasing. There is a current debate within the insurance industry about the level of science versus art that will exist at the underwriter desk of the future. There is no doubt that the level of science is increasing. Will it eventually completely eliminate the art, like in the case of life insurance or mortgage insurance? That is still unclear. However, what is clear, is that the data requirements for the increased science will quickly grow.
What does that means for contractors and future risk management practices? The ability to better predict and also prevent accidents is rising rapidly. These advances will not only become standard for insurance underwriting, but will also make contractors more efficient and reduce risk. Opportunities exist today with wearables to monitor employee fatigue, telematics to track speed and distracted driving, project sensors to alert for water infiltration, connected equipment to quickly react to maintenance needs before a breakdown, PPE location tracking to ensure proper use, and analytic scoring mechanisms of subcontractor performance. The list goes on and on. The benefits in terms of risk avoidance and improved efficiency will outweigh the costs; well beyond the eventual requirements of the insurance industry. Questions still remain. What is the most important risk? How to start? Those are questions for each contractor to consider individually. However, it is important to start formulating that strategy now, rather than waiting until the insurance company starts requiring this data, just like height, weight, and blood pressure.