WTF definition owner builder insurance underwriting insanity!

Definition owner builder insurance underwriting insanity

An underwriting agency recently announced its transformation from acting on behalf of an insurer to rebranding as a sub-agent of another owner builder underwriting agency. An underwriting agency acting on behalf of another underwriting agency, who in turn acts on behalf of the insurer. WTF - who’s actually underwriting and taking responsibility in this scenario?

Owners builders are encouraged to 'look further than the telephone sales spin' and investigate who actually is underwriting the insurance being offered. Some examples of very bad practice: The insurer named on the paper work is PTY LTD company - a $2 capital base. How are they supposedf to pay out a claim?

Owner Builder Insurance Economics Update

Victorian and NSW Owner Builders Have Their Say

In 2015 Qiducia Underwriting sponsored research program to clarify and update the insurance economics of owner building. 120 first time owner builders were randomly selected to participate. 108 responded and participated. The research program also extended to a sample size of market leading insurance brokers. These brokers are regularly visible through advertising and promotional activities.

Originality and value. This study was aimed at:
1. Updating the refreshing market segment profiles. (Who are owner builders, household profiles, income levels, employment, education etc)
2. Project risks (applying construction and building codes and standards)
3. Pre-construction phase risk mitigation planning and resources
4. Distribution and broker channel effectiveness. Comparing web based offerings to personal and traditional channels.
Findings
1. Broker models remain more effective and efficient compared to other distribution options such as online or web based services, on whole of portfolio basis. When segmenting insurable owner builder projects into insured value, project status (commence works or other), location and owner builder profile characteristics, then the broker model advantage deteriorates and fragments. Commoditisation at the lower insured value is driven by online insurance options.
2. Online owner builder insurance offerings, whilst gaining transactional activity are structured with little or no resource cost elements, resulting from online marketing assumptions. This assumption upon further evaluation was found to be less true when 40% of online enquiries require referral or manual intervention. Online enquiries also were heavily biased towards low value projects, attracting the double whammy of low earnt income (average $125.00, including CC fee), and high cost in attracting clients via google AdWords for example (average $28 per enquiry).
3. Portfolio performance (IBNR loss ratios) remained steady when compared to 2008 and 2013 studies.
4. Intermediaries are more than adequately skilled to write owner builder business. In other words ‘they know what to know’. Commensurably underwriters prefer to restrict and engage junior level underwriting reigning broking staff to over communicate and seeking immaterial documentation to actually assessing the risk. A freeing up of processes is highly desirable and sought after.

The study documented work flows and internal processes resulting in refining previously developed and validated intermediary markets value chain. The competitiveness of the intermediary not only depends on the functioning of broking and the cluster of security arrangements, but also and often most importantly, on the entire chain particularly at the client interfaces.

Owner Builder Insurance Economic update 2015, sponsored by Qiducia Underwriting.

Insurance Economics 2010

The key to best practice underwriting is detailed industry understandings of the relationship between elements of an owner builder project and risk economics.

In 2008 Qamvis Insurance Group was invited to participate in path breaking research to identify, experience, analyse and build real life cases to better quantify owner builder risks.
 
Once research commenced a small handful underwriters and industry practitioners recognised better practices was possible if 4 existing barriers were removed or at least redefined.
1. Most owner builder underwriters are part time as owner builders are bundled-in along other classes of insurance, which in most examples dwarf owner builder revenues. Line of business amalgamation means skills development, hands on experiences and regular real life challenges are diluted or either non-existent or infrequent.
2. Internal work load pressures places barriers to learning mindsets, when the reply is always about time and expediency.
3. Senior underwriters reluctance to invest in updating their rudimentary and often outdated knowledge of owner builders.
4. Lack of motivation to change the way things are done.

The 2008 research benchmarked best practice underwriting techniques which led many to freshly re-examine roles and methodologies of continuing best practice underwriting. Underwriters like most Australians, are inundated with over 174 newspapers’ worth of information every day (Reference David Derbyshire, MailOnline 2013). Information and data is a prerequisite, but processing such volumes and then applying regular learnings to underwriting process improvements is something else.

A fresh perspective was required if Brokers are to remain central distributor and partner to insurers and owner builders are advised and insured appropriately for their particular risk and circumstances. In other words Brokers remain central to insurance economics. A fresh approach in ‘tight’ markets is not easily implemented.

Brokers remain at the core of owner builder insurance business for the very important reason that when retail clients collide into commercial insurances, the uninitiated and inexperienced owner builder relies on independent advice and counsel. It has almost become trite to say owner builders are the same across the nation. They are not. The risks are not. Insurance economics are not.

Moreover, in most cases owner builder business is resource (staff and time) intense, as the prospective client are unsure of their precise insurance requirements and as Brokers seek out details of the actual risk. The Benchmarking study found the following cost centres in an average owner builder transaction:
1. Brokers transacting 15 or more policies per month (40 transactions per quarter) incurred costs a 28% more than those Brokers who produced 5 or less transactions per month.
2. Cost activities defined process chain as:
a. Advertising and new business acquisition costs;
b. Pre-proposal communications;
c. Underwriter interactions;
d. Proposal;
e. Post-proposal communications;
f. Back office administration;
g. Policy life management.
3. Commissions and broker fees including credit card fees, accounted for 30% of base premium.

Owner builder transaction costs are accentuated by acquisition costs. Broad, web based advertising increases cost of acquisition considerably. Referral and organic new business enquiries reduce these enquiry costs and rebalance this line of business contributions.

Like most enterprises, uncontrolled costs cannot be influenced by actions of the executive team. However imputed costs or costs which can be managed without any cash outlays are highly desirable.

Underwriting Agencies whose sole purpose is to provide comprehensive and wholesome value proposition improvement to Brokers and intermediaries, can impact these imputed costs significantly.
 
Qiducia Underwriting platform is about delivering these competitive advantages

Contact Us

Qiducia Underwriting

Financial Services Licence No 442158 ABN: 32 097 620 758
T: 1300 817 835
AH: 0417 473 749
W: qiducia.com.au
Post Office Box 88, Glen Iris 3146
L1, 269a High Street Ashburton VIC 3147
 
Qiducia Underwriting is a trading name of Qamvis Insurance Group Pty Ltd (est 2001)
Financial Services Licence No 442158 ABN: 32 097 620 758