When calculating the risk premium to insure a given property, an insurance company evaluates the potential cost (claim severity) and probability (claim frequency) that could result from different sorts of damage such as fire, water, storm, or natural disasters. Having a good understanding of the insured property’s size and characteristics is essential to evaluate its risk, which explains why it is so crucial for insurance companies to gather data about the property it is about to insure.
If you have any experience with purchasing home insurance, you probably know how cumbersome the transaction process can be. It typically comprises a long list of questions that insurance companies use to infer the size of a house and its various characteristics to determine the technical risk premium.
Example of traditional questionnaire used by Corona Direct
Most insurers base their pricing on the number of places or total living area, complemented with some more targeted questions. While this approach has proven to be very useful in the past decades, it has several shortcomings (cf. our blog post on “The use and abuse of reconstruction value” for more details). Besides the time it takes to complete the questionnaire, it is also prone to human error. People can make unintentional mistakes, which could result in a situation where they are under or over-insured. These elements create much friction in the traditional home insurance underwriting process.
Address: the only question that really matters
In recent years, an abundance of data has become available, opening new avenues for home insurers to assess their customers’ homes. Through a combination of mainly open geodata (cf. our blog post on “Open geodata: Rockestate’s key ingredient” for more info) and artificial intelligence, Rockestate has developed a 3D model for every building in Belgium and calculates for all these buildings various features such as parcel area, volume, presence of a swimming pool, …
With solely an address, an insurer can now infer the size of any property it seeks to insure, as well as many other characteristics. It turns the address into the only question that really matters. Corona Direct’s new home insurance follows this premise. It aims to offer a frictionless underwriting experience to its customers by asking only information that it cannot infer from the address. By stepping away from the traditional pricing grid, which is based on the number of rooms, it had to develop a new pricing methodology based on the various building characteristics calculated by Rockestate.
An exciting part of this new approach is that it gives Corona Direct access to valuable building characteristics that were previously impossible to use. One of the best examples is the volume of a property; this is a great metric to determine its size. Unfortunately, it is not feasible to ask such a question to potential customers. Thanks to Rockestate’s solution, insurers get a much more in-depth view of the characteristics of any given house, allowing them to fine-tune their pricing.
One of the central elements in the underwriting process of Corona Direct’s new home insurance is the 3D visualization of the property, which is an entirely new way to interact with the customer. By showing a 3D model of his house, a customer immediately sees where the information comes from to calculate the risk premium. It also removes any possible doubt for the customer about what he insures. This could prove very valuable, especially in situations where a customer may have one or multiple secondary buildings (potentially on different parcels).
3D model of the insured property
InsurTech & real innovation
With its new home insurance product, Corona Direct has chosen for a drastic simplification of its underwriting process to remove a maximum of friction for its customers. They have decided to move towards an entirely different pricing methodology rather than marginally improving their existing pricing grid. In a conservative market such as the insurance business, this is no small feat.
We believe this is a laudable initiative, which clearly shows that innovation in the InsurTech space does not necessarily have to come from start-ups and the likes. Insurance companies that have been around for a while have everything they need to drive this type of innovation.