New York Property Underwriters Insurance Association

Technology, capital allocation reshape underwriting: XL executive

CHICAGO—Technological advances and capital allocation have had significant effects on insurance underwriting during the past several years, according to Bob Shine, New York-based chief underwriting officer for North American property and casualty at XL Insurance.

Mr. Shine's remarks were part of his keynote speech Tuesday at the seventh annual View from the Top Luncheon in Chicago sponsored by the Assn. of Lloyd's Brokers, the LaSalle Street Club and the Chicago chapters of the Risk & Insurance Management Society Inc. and the Chartered Property Casualty Underwriters Society.

“The technology is the biggest story and the biggest change on the underwriting side,” Mr. Shine said. “We haven't been known for our technology.”

Emergence of cellphones

Mr. Shine noted that early in his career at Fireman's Fund Insurance Co. in New Jersey, where he managed large accounts, there was a more “regional view” of underwriting. Much of the business was consistent and less volatile, and underwriters were familiar with the risk. “They basically saw the same business year in and year out,” he said.

The impact of computers also wasn't fully realized at that time, Mr. Shine said. “From an underwriting perspective, (the computer) wasn't that dynamic. It was more about processing business,” he said.

The emergence and prominence of mobile telephones “fundamentally…changed underwriting,” as insurance professionals suddenly had 24-hour accessibility, he said.

Predictive modeling, analytics

Predictive modeling and analytics have further changed the industry for underwriters, who must now balance the use of data with solid underwriting, Mr. Shine said. Today, companies often have proprietary data, he said, adding, “You're no longer relying on ISO data or an industry database to drive your pricing models.”

Mr. Shine said that much of today's underwriting behavior is driven by insurers' capital allocation strategies. In the last five or six years, he said, “everybody's focused on capital allocation,” which has become “the No. 1 thing driving underwriting appetite today.

ThePopTort: Florida Homeowners Insurance Blues

Hundreds of thousands of policyholders in high-risk areas [were being] dumped into the post-[Hurricane] Andrew state-run “insurer of last resort.” The company, Citizens Property Insurance Corp (the result of a merger between Florida Windstorm Underwriting Association and Florida Residential Property Joint Underwriting Association) has seen astronomical rate hikes. And while policyholders in high-risk areas are dumped into this system, private insurers keep the lower risks for themselves. Said [Bill Newton of the Florida Consumer Action Network], “The state high risk pool takes the windstorm risk in those areas, and the insurers just take the balance of the risk [in less risky areas]. That deprives the state of the profits from the more lucrative part of the business.” Citizens now faces a $1.8 billon deficit.

, you will see very innovative solutions to this mess. But our sympathy only goes so far. Wait ‘til you hear this.

Apparently, according to a lawsuit just filed against Citizens (asking for class action status), Citizens “uses a computer program called Value360 to calculate the ‘replacement cost’ for homes if they are damaged or destroyed, a figure that determines how much coverage a homeowner has to buy on his house. According to the lawsuit, the program churns out cost calculations that are as much as double what the homes are actually worth – resulting in skyrocketing premiums.”

Joe Freitas, a New Port Richey man who is the lead plaintiff, bought a house for $109,000 in 2011. When he and his wife closed on the property, they had a policy that covered $139,000 in damages and cost $917 per year. But 30 days later, their insurance agent said Citizens would not insure them unless they paid for a $236,700 policy – with a yearly premium of $1,846. "It changed the way we were going to live our lives," Freitas, 44, said at a news conference.

Ruth Lauro, an 82-year-old Citizens' policyholder also from New Port Richey who lost her job in October, said she's in the same boat. Her house, which attorneys said was worth $50,000, was given a replacement value of $125,000. Lauro, whose only income is $637 a month from Social Security, said she's having trouble making ends meet. "I'm tired of eating rice," she said.

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