(Photo source, U.K. government.)
Moves by the likes of Google raise profound questions about the long term future of the insurance industry. However, more immediate threats – and opportunities – in the property insurance realm are emerging from the consolidation of insurance data service providers, as exemplified by CoreLogic’s recent acquisitions. As property insurers feel pressure to underwrite to a profit, data service providers are acquiring the ability to provide the basis of more granular risk appraisal.
CoreLogic, a provider of consumer, mortgage and property data to customers such as banks and appraisers, made big news last year with its acquisition of Marshall & Swift Boeck (MSB). The MSB deal – which will bring the vendor insurance-focused property valuation, credit and flood services capabilities – builds upon the company’s 2012 acquisition of CDS Business Mapping, which brought CoreLogic the RiskMeter Online solution. While the MSB deal was still under regulatory review – and still is according to a CoreLogic spokesperson – CoreLogic went forward with its acquisition of CAT modeler EQECAT in late December 2014.
Steve Kaye, a senior researcher with Novarica, sees CoreLogic’s EQECAT acquisition within a larger scale play in property analytics and related services. “EQECAT will enable CoreLogic to build on existing natural hazard information and build synergies across various products,” Kaye comments. As with MSB, the deal increased CoreLogic’s penetration into the insurance vertical. “It gets them a large subscriber base to build relationships, and it also supports financial statements saying that the firm plans to grow its data and analytics segment to over 50 percent of its total revenues within three years.”
Kaye chronicled CoreLogic’s M&A activities in the August 2013 Novarica research report “Data Services Providers Consolidation in Insurance.” The report covers more than 40 acquisitions by five major data services providers: CoreLogic, Acxiom Corp., ISO/Verisk Analytics, LexisNexis Risk Solutions and R.L. Polk/IHS. In his introduction, Kaye asserts that, “Third-party data is more important than ever to insurers, but while data sources are proliferating, data providers are consolidating.”
Carriers should be alert to the opportunities that consolidation may create in a time of accelerating business evolution, Kaye suggests: “Insurers should make sure they understand their reliance on specific providers as they evolve their business models to leverage more third-party data in underwriting, claims and marketing.”
It will be interesting to see how CoreLogic integrates the various products that come with its acquisitions, according to Kaye, but he sees an emerging capability to analyze property risk at more granular levels. “In the past you could analyze properties by ZIP code and interpolated addresses,” he notes. “Now they’re looking to actual property parcels for a much more accurate view of carriers’ exposures.”
The geographic precision aimed at by consolidating data providers can extend even below the level of a single property, notes Mark Breading, a partner with Boston-based research and advisory firm SMA. “It can go down to specific locations within a property,” he says. “For example, one end of a mall may have greater flood risk than the other end.”
EQECAT was the last of the three major CAT modelers to be acquired, with RMS owned by conglomerate DMGT and AIR owned by ISO/Verisk Analytics Breading observes. While RMS operates fairly autonomously within DMGT, clear parallels emerge between CoreLogic and ISO/Verisk with the EQECAT acquisition. “AIR fits nicely into the overall Verisk portfolio and EQECAT into CoreLogic – both are data companies,” Breading says.
“I see CoreLogic and ISO/Verisk going toe-to-toe in the property arena,” Breading adds. “CoreLogic’s portfolio – including RiskMeter, MSB and Symbility – competes with ISO/Verisk’s A-Plus, AIR Worldwide and Xactware. They both have property characteristics, hazard data, CAT models and damage estimation tools.”
CoreLogic’s competitive M&A moves should be seen within the larger market context of property insurers needing to turn an underwriting profit, according to Todd Eyler, research director of Aite Group’s insurance practice.
Holistic Approach to Risk Management
“There’s a focus on getting a holistic view of a property – who lives there, what construction materials are used, the risks specific to the geographic location, etc.,” Eyler comments. “The demand is especially great for tier one homeowners and commercial property insurers to create a holistic approach to risk management.”
Verisk is very strongly positioned to meet the demand through its Xactware claims estimation capabilities, its AIR Worldwide CAT modeling strengths and through recent work in aerial imaging, which can provide highly dispositive information about a given property’s roofing, according to Eyler.
CoreLogic has united its dominant hazard data and other valuation capabilities with insurance-focused MSB, which had previously reached a kind of parity on claims estimation with Xactware through partnership and part ownership with Simbility. The EQECAT deal brings the ability to compete in the CAT modeling space. “CoreLogic still lacks aerial imagery, and they’ll probably partner there as well,” Eyler notes. “But they’re very strong in commercial property, very dominant with both the value of the building and its contents, so they have unique strengths.”
The emerging picture of property risk enabled by the coalescing capabilities of the data service providers begins to resemble what a Vehicle Identification Number (VIN) provides from an automobile policy underwriting standpoint, suggests Eyler. “Instead of a VIN, you have an address, but that provides you with a comprehensive view of the risk,” he elaborates. “Once you have a more granular and comprehensive view of the risk, you can use predictive analytics to very accurately and efficiently price the risk.
SMA’s Breading also sees in the data services competition the emergence of the next level of property underwriting. “Everybody is moving to by-peril rating instead of just creating aggregate scores,” he says. “They want to look at each peril, a variety of models and individual properties. They know they have to if they’re going to be profitable, and if their competitors understand risk more precisely than they do, they’re going to die off.”