22 Oct Eircode and underwriting leakage
Being able to predict what is going to happen is a key goal for the insurance industry. With the release of the new national postcode system for Ireland, Eircode, underwriters can now much more accurately predict where certain events might happen.
The insurance sector is extremely competitive and competitive advantage goes to the organisation that can most accurately forecast the location, severity and regularity of incidents and model its business accordingly. In truth, we live in a world full of things that are impossible to predict, so often the best insurers are those who are the least inaccurate in their predictive modelling.
This predictive process is supported by a huge amount of data and analysis which feeds into underwriting, which is the act of putting an accurate price on all of these unknowables. The gap between the current state of an insurers underwriting process and a perfect underwriting process, where all information is known at all times, is known as underwriting leakage.The goal for underwriters is to reduce underwriting leakage to zero, by eliminating all of the unknowns. In reality, this is impossible, so the next best goal is to close the gap as much as possible between the current process and zero, or at least have the gap narrower than your competitors.There is a clear correlation between underwriting leakage and bad or inaccurate data. Every piece of information that is imprecise or incomplete adds to the gap. For years, Irish insurers have been trying to reduce underwriting leakage by improving their customer address data.Addressing in Ireland is a problem for insurers. Some 35% addresses are non-unique. That is to say that a cluster of houses all share a common address, only differentiated by the name of the resident. An inability to precisely identify the location of a customer introduces inaccuracy into any model and causes underwriting leakage.
The rollout of Eircode is a huge bonus for underwriters, as they can now accurately (and quickly) capture address data with precise location information, by using a product like Autoaddress. Better data means less leakage, a happier underwriter and more accurate customer pricing.The challenge for insurers now is how fast they can implement Eircodes in their processes and make that step forward ahead of their competitors.