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What are the Advantages of Rating By Peril?

By November 4, 2021February 27th, 2024No Comments

Better data is shaping today’s insurance industry. With more information at a carrier’s disposal, better decisions can be made for all parties involved.

Insight into the costs of coverage on a per-peril basis can drastically influence competitive decisions to improve loss ratios, reach internal efficiencies and improve customer satisfaction.

WaterStreet Company offers P&C Policy Administration Solutions to give carriers & MGAs all the necessary tools to keep up with industry changes.

What is a Peril?

A peril is an unexpected event causing property damage or loss, whether through a natural or man made event. Protection against perils are often offered in two ways:

Named Perils Coverage – the insurer provides a list of the exact perils covered through the policy.

All Perils or Open Perils Coverage – the insurer allows coverage on all perils that are not individually excluded.

What is Rating by Peril?

Rating by peril means offering the policyholder a fixed rate based on the perils covered by the policy.

Coverage is priced based on the cause of the loss. This allows carriers and other insurers to more accurately associate the costs of damage by perils with fairly priced coverage, rather than an all-inclusive or less-inclusive coverage plan.

Transitioning to Rate by Peril

Many insurers are shifting towards a rate by peril system in order to offer more granular and relevant policies.
One study found 65% of carriers that had not yet offered rating by peril would begin by 2017. ISO has determined 20 building characters that influence rating by peril, such as having a pool in the yard or the roof being a certain age.
WaterStreet Company connects to third-party integrations that help inform the rate by peril process, offering policy administrators and underwriters more information to weigh the risk of insuring property against peril damage. Rating by peril can help the insured save as well. Here are the key benefits to rating by peril:

  • Individualized quoting tailored to the policyholder’s risk
  • Better understanding of risk by regions, such as locations more at risk to select perils
  • Better insight into crafting policies by peril for marketing protection against perils to at-risk regions
  • Costs saved for the insured by offering the choice to cover against most common perils per their policy
  • Improved pricing structure for insurers to implement for the costliest vs least costly policies

All carriers desire a lower loss ratio. Rating by peril shows policyholders the true costs to selectively cover their property from certain perils over others. Geographic location or property features can increase or decrease the rating as well, working in favor of the policyholder in many cases. If the policyholder can show their property has extra protection from select perils, such as smart locks on the door to protect against theft, their coverage could cost less depending on how the carrier rates by peril and the questions asked to take into consideration when providing coverage.

Self inspections are one feature carriers can enable through third-party integrations with WaterStreet Company. This allows the policyholder to directly share information about their property with pictures and video, allowing them to receive discounts on their policy for showing how their home protects against perils.

Common Ways to Rate by Peril

There are nine common perils insurers rate by. These perils are dictated by the most manageable and predictable causes for claims compared to the costs to cover them.

1. Weather-related water

2. Non weather-related

3. Wind

4. Hail

5. Lightning

6. Fire

7. Liability

8. Theft or vandalism

9. All other perils

One trend for rating by peril is whether or not to cover against named storms. Some carriers charge a deductible in the case of hurricane damage. Rating by peril can include wind, hail, lightning and weather-related water separately, however some carriers exclude hurricanes from coverage due to their far-reaching effects.

Perils to Highlight in P&C Offerings

Named perils coverage indicates a list of perils that are included within a policy. In total, there are 16 named perils that are often covered. There are additional named perils that are either impossible or very difficult to cover.

1. Fire or lightning

2. Windstorm or hail

3. Explosion

4. Riots

5. Aircraft

6. Vehicles

7. Smoke

8. Vandalism

9. Theft

10. Falling objects

11. Weight of ice, snow, or sleet

12. Accidental discharge or overflow of water or steam

13. Sudden and accidental tearing, cracking, burning, or bulging

14. Freezing

15. Sudden and accidental damage due to short circuiting

16. Volcanic Eruption

Named perils coverage is very specific to perils listed in the policy details. This allows carriers to offer less expensive coverage options by excluding all events not listed. This list also gives policyholders an easy reference on what to expect from their coverage and allows them to seek out further coverage as needed. When placing a claim, carriers can hold the policyholder to proving their claim is based on a named peril.

There are additional named perils that are either impossible or very difficult to cover.

  • War
  • Nuclear hazard
  • Earthquakes and landslides
  • Flooding due to storms
  • Intentional loss
  • Damage due to neglect or lack of maintenance, such as rust or mold

Home warranties are an example of unique coverage for protecting home appliances and systems from mechanical damage, which is excluded under most home insurance plans. Pet liability is another example of niche coverage often excluded but can be offered as an add on or through a separate insurer.

All risks and perils coverage may be offered by insurers seeking to offer the best coverage against unexpected events.

P&C Insurance Software with Rating by Peril

WaterStreet Company offers insurers a unified system for managing the full policy lifecycle. With document management at its core, gain complete control over a history of records with policyholders and automatically generate documents as new policyholders are gained.
Take advantage of partners and integrations to better gain data for assessing risk. Our advanced API allows carriers to connect to any number of third-party integrations, including solutions to rate by peril.

Take advantage of partners and integrations to better gain data for assessing risk. Our advanced API allows carriers to connect to any number of third-party integrations, including solutions to rate by peril.

Ready to Take Action?

Reach out to WaterStreet Company today to request a consultation and demo of our solutions.

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