Since 1972, Home Owner Multi Peril Premiums have grown at a compound annual growth rate (CAGR) of 10% per annum. Home Owner Multi Peril Premiums (HOMPP) are estimated to have reached $43.7 Billion dollars in 2003. However, there is currently a chronic level of under-insurance in both property and home contents insurance in the U.S. home market. This problem is bad for consumers, who are usually unaware that they are not fully covered; it is bad for insurers, who lose out on the additional premiums they could recoup for full coverage; and it is bad for lenders, whose collateral may be at risk.
A survey of over 5 million policies determined that between 70% and 80% of homeowners are under-insured and the increase needed to provide adequate coverage is 35%. Additional research has shown that a 17% increase in premiums would be required to realign those policies with the required level of coverage. Furthermore, in an additional survey, 94% of respondents indicated they would be willing to pay additional premiums in order to be properly insured.
As outlined in the following table, by providing policy holders and potential customers with the ability to more accurately estimate their insurance needs, the IV software will assist insurance industry participants to identify potential increases in annual premium income of over $4.7 Billion based on the aforementioned industry estimates and surveys.
(1)(2) (3) (4) (5) Industry Surveys
(6) 2003 Estimates based on Insurance Information Institute / AM Best Statistics
(7) % of Clients over-insured X %'age Level of over-insurance X HOMP Premium $ X 50% Premium
(8) % of Clients Under-insured X %'age Level of Under-insurance X HOMP Premium $ X 50% Premium Increase
(9) Under insurance premium increase - Over insurance premium decrease
Based on industry statistics and our ability to provide a Return in Investment (ROI) of 20:1 to our insurance industry clients, we are confident in our ability to generate annual revenues of $200 Million to $250 million from our Insurance Valuer solutions as the organization grows.
Additional Sources of Revenue
ISL's success will be further supported by the growing pressure on insurance companies to assist consumers in accurately estimating the replacement cost of their homes and other valuables. A number of recent legislative efforts have addressed this concern, and ISL is well-positioned to take advantage of this weakness in the insurance industry. The following article in reference to the California wildfires illustrates dramatically the significant need in the marketplace for ISL's solutions and services.
HEADLINE: Wildfire victims say insurance companies misled them on coverage
BYLINE: By ELLIOT SPAGAT, Associated Press Writer
DATELINE: SAN DIEGO
Many Southern California homeowners who thought they were fully insured against natural disasters have discovered after last year's wildfires that their policies left them in the lurch - in some cases hundreds of thousands of dollars short of what they need to rebuild.
Dozens of homeowners told California Insurance Commissioner John Garamendi during public forums over the last week that insurers wrote policies based on their calculations of a home's "replacement cost," only to learn that the insurers' estimates were grossly inadequate.
Consider Don Halte, 64, who said the replacement cost listed on his Farmers Insurance policy was $200,000 below the actual cost of rebuilding his home in Crest, a mountain community east of San Diego, which was destroyed last October. "I thought replacement meant replacement," he said to applause from an audience of about 300 people Monday night at Shadow Mountain Community Church in El Cajon, a San Diego suburb. "A gentleman here has a dictionary. Maybe I should look at it."
The communities east of San Diego were among the worst hit by the October wildfires, which destroyed more than 3,600 homes across Southern California.
Lynda Martin, 46, said she called State Farm Insurance only two weeks before her home burned in Alpine, also east of San Diego. She asked if her coverage was adequate, noting that the assessed value of her home had more than doubled since she bought the policy about eight years earlier.
Martin said she was told that she had "excellent coverage" and was discouraged from buying more. As it turns out, she says it will cost $485,000 to replace her home, well above her policy's listed replacement cost of $209,950.
After three forums in San Diego County and one in San Bernardino County, Garamendi said he was launching a special team to investigate complaints, promising a "complete, thorough audit." If investigators uncover patterns of wrongdoing, insurers could be barred from doing business in California or be ordered to pay heavy fines, he said.
"I'm giving (the insurance companies) bad marks," said Garamendi, who only two months ago praised the industry for its response to the fires. "I've gone through four of these hearings and these problems are serious, they're pervasive, and the biggest insurance companies in this nation are not properly handling claims. ... Clearly, they have disobeyed the law."
Some homeowners told Garamendi they have been assigned five or more adjusters, creating long delays as each one got up to speed. Others criticized insurers for haggling over itemized lists of personal belongings lost in the fires.
But most complaints concerned allegations that insurers misled homeowners into believing they were fully covered. Four law firms recently teamed up to sue carriers on behalf of wildfire victims who say they were wrongfully left unprotected.
Garamendi said insurance companies may have "low-balled" the estimated cost of replacing homes in an effort to sell more policies.
Insurance company officials who attended the forums declined to discuss individual cases but denied widespread wrongdoing. A State Farm spokesman, Bill Sirola, said it made no sense to low-ball the replacement cost because the company would effectively be denying a chance to collect higher premiums.
---On the Net:
GRAPHIC: AP Photo CADIU101
LOAD-DATE: April 28, 2004
As stated above, our basic target market segments are consumers, insurers, mortgage and small business lenders, and ancillary industries associated with the casualty and property insurance industry.
The market segmentation plan for insurance companies reflects industry standard definitions for Large, Medium and Small insurers based on analysis by AM Best & Company, National Association of Insurance Commissioners (NAIC), and the Insurance Information Institute (III), the major information collation and reporting organizations for the insurance industry. In the 1997 U.S. Census, there were 20,903 property and casualty insurance carriers, doing $299 Billion worth of business within the United States. In the last seven years, the industry has seen significant growth.
The individual policy holder segment includes individuals with internet access and home owner policies / insured properties currently underwritten in the United States. Our estimates are based on NAIC and III statistics, which estimate that there are currently 77 million homeowner insurance policies in force in the United States. According to a recent Nielsen//NetRatings survey, nearly 75% of U.S. households have Internet access at home. Our initial potential consumer market is nearly 58 million households, with high growth.
The mortgage broker and small business lender estimates are based on Risk Management Association (RMA) and Mortgage Broker Association market estimates.
All of our prospective customers share the need for reliable, accurate, and current information about property valuation and risk assessment. Our extensive market research reveals that existing insurance industry sources for property replacement and construction data cannot update their information regularly enough, nor keep a broad-enough range of data available, to accurately assess insurance coverage needs. Additionally, consumers have been all but ignored in the current policy origination and underwriting process.
Our strategy is to focus on large insurers that carry the significant percentage of the home property and contents market. Based on Insurance Information Institute statistics, the top 10 insurers account for 60% to 65% of the total premium dollars collected each year. These insurers, due to their large policy numbers and resulting larger premium base will benefit in greater dollar terms in premium increase through the utilization of the Insurance Valuer Software. These insurers also attract the majority of consumers to their websites and account for a significant percentage of Web-driven enquires.
The medium and small sized insurer segments have yet to adopt aggressive Web-based distribution strategies and rely on agent-driven referrals for business. However, as they have been a neglected segment of the market, we will aggressively pursue opportunities to allow us to increase market and consumer "top of mind" awareness.
Our largest potential market segment, and the most neglected by current industry groups, is the end-user - the insurance consumer. The general populace needs to know the value of insurance, the dangers of under-insurance, and the best ways to accurately assess their property's value. In addition, they often need secure storage of their insurance documents and proof of ownership for important items. Our software solutions will meet their needs.
As previously outlined, there are currently no web-based valuation applications available in the North American market today, while there is a chronic level of under-insurance in both building and home contents insurance in the U.S. home market. ISL will be the first Web-based organization to provide solutions and services to the insurance market and deliver them in an integrated and far more customer focused fashion.
After reviewing the current marketplace, customer needs, and the competitive situation, we identified significant market opportunity which is driven by a number of factors:
Additionally, our research has shown a significant degree of customer dissatisfaction and resentment toward our most likely competition in terms of pricing, service and provision of additional products and services.
The insurance industry currently gets data from in-house review and from a few large research agencies. Depending on the size of the business, the data may be more or less current and comprehensive. Franchise insurance agents often store such data centrally with online data retrieval for individual agents. This kind of data provision has paved the way for our products, but cannot compete with our prices, customer service, or additional solutions.
The market for building material and construction cost information utilized in the insurance industry underwriting and claims management processes is dominated by Marshall & Swift/Boeck (MSB). MSB has a number of product offerings including paper, telephone and PC based products. They also provide customized consultancy products and Web-based access to the underlying product (s) and information. However, MSB does not provide web-based access for consumers to determine their insurance needs.
In addition, unlike the IV software, the MSB costing database is not based on a Dynamic Elemental Modeling process (DEM) which uses real time building cost information, but rather on a factoring approach, which inherently is not as accurate as the DEM approach.
MSB does not provide its insurance industry clients with contents value calculation capabilities, a service that will allow ISL to immediately differentiate our solutions from our competitors.
MSB's efforts have largely focused on the claims and underwriting process and have ignored the consumer facing opportunities and services. Only a few new features are added on an ad-hoc basis, and development of their existing solutions has been significantly constrained. Additionally, MSB has not broadened their scope to include services to small business lenders, mortgage lenders or additional service and/or solution providers.
As previously mentioned, the provision of an alternative source for information and/or services would be welcomed by the industry. MSB is perceived in the marketplace as utilizing its dominant position to its sole advantage and to the significant disadvantage of its customers.
We will take advantage of our position as a new and innovative player in the marketplace. The IV software has been developed to be "data agnostic". Existing MSB customers, even if they are locked into longer term contracts, can still use the IV software while maintaining their current MSB contractual relationships.
Insurance industry executives are by nature conservative, and tend to put a great deal of weight on the vendor's reputation, rather than just on the particular merits of the product or service being offered. While this tends to favor more established companies, it can work to the advantage of a newer company that carefully crafts a very specific and favorable image for itself.
Other financial services organizations, including small business and mortgage lenders, are less conservative in their approach and appear to be more willing to move to new and more innovative solutions. However, they can also be restricted by constrained decision-making processes and time-frames.
However, buyers are increasingly expecting additional and integrated solutions. As more innovative solutions are offered, buyers are taking advantage of them.
In addition to providing added value and integrated solutions, we will be able to take advantage of our existing customer base and implementations in Australia. Reference to existing customers will speed the evaluation and analysis process demonstrating the capabilities of our solutions in a live environment. This will allow us to mitigate any concerns that US customers may have that our solutions are not fully developed and/or operational.
As previously mentioned, additional points of differentiation for ISL in the marketplace which will allow us to positively influence buying behavior will include the distribution and technical partnerships with existing industry leading automated application, decisioning and policy management providers and consultants.