Spotlight: Buildings underinsurance – a hybrid solution?

The issue of underinsurance has created a dynamic landscape of both opportunity and challenge in the field of buildings insurance valuations. Johnny Thomson explains how the current period calls for innovative solutions that align with technological capabilities, while recognising the limitations of emerging technologies

There has long been a need for a fresh approach to buildings insurance valuations, an approach that can be compared to the way hybrid vehicles are bridging the gap in the automotive industry before full electric vehicle (EV) charging infrastructure becomes robust and widespread.

The analogy of hybrid vehicles: a lesson for insurance valuation

The automotive industry’s shift towards sustainability has been marked by a strategic interim phase: the development of hybrid vehicles.

These vehicles offer a balance between traditional internal combustion engines and electric power, enabling consumers to transition towards greener alternatives while the infrastructure for EV charging stations continues to develop. This approach has smoothed the path for wider EV adoption by enabling practical and scalable steps to be taken before full implementation becomes feasible.

Underinsurance not only poses significant risks for property owners, but also threatens the stability of insurers who could face unanticipated liabilities.

RebuildCostASSESSMENT.com has adopted a similar ‘hybrid’ or ‘augmented’ model in its approach to building insurance valuations.

This strategic positioning is crucial at a time when artificial intelligence (AI) is navigating the familiar arc described by Gartner’s Hype Cycle: transitioning from the ‘peak of over-inflated expectations’ to the ‘trough of disillusionment’. It is a phase where the promise of AI has yet to meet the full extent of its practical applications and reliability.

Augmented intelligence: a practical solution for today’s challenges

The concept of ‘augmented intelligence’ – as outlined in PwC’s 2019 report The Future of Risk: The Insurance Risk Function of the Future – is about enhancing human capability with technology rather than fully replacing it. To us as an organisation this means an approach that adopts technology to support, rather than replace, expert judgement.  To use desktop assessments that combine cutting-edge technology with experienced human oversight, resulting in valuations that are both accurate and scalable.

The current underinsurance challenge within the buildings insurance sector makes this hybrid approach even more relevant. Underinsurance not only poses significant risks for property owners, but also threatens the stability of insurers who could face unanticipated liabilities. Addressing this challenge requires a nuanced, reliable, and adaptable solution that can scale over time without sacrificing accuracy.

The cost of rushing into AI-only solutions

While there is no doubt that AI and machine learning will play pivotal roles in the future of insurance valuations, the industry must proceed with caution. Implementing high-volume, AI-based models too quickly could lead to unintended consequences, such as steep and sudden increases in insurance premiums.

By supporting this hybrid model now, the insurance industry can proactively address underinsurance without destabilising the market.

For instance, if a reliable AI-driven model was employed across the board, data from our most recent 34,000 property assessments suggests premiums could surge overnight by up to 50%. Such a drastic shift would be unsustainable for consumers and could disrupt the insurance market, leaving policyholders and insurers alike in precarious positions.

As an alternative would it not be better to leverage technology for efficient data collection and preliminary analysis, and then layer expert judgement for final validation?

This means the assessments strike a balance between innovation and dependability. This ensures that the quality of the valuation remains high, aligning with the long-term needs of the industry and providing a safety net that AI-only models, in their current state, cannot guarantee.

Why now is the time for a hybrid approach

The insurance industry is at a pivotal point. The tools to combat underinsurance exist, but adopting a measured, phased approach is crucial to avoid market shock. A hybrid model allows for a steady transition, preparing the ground for when AI technology becomes reliable and trusted enough to stand alone.

This period of transition not only builds confidence in digital solutions, but also provides the opportunity for rigorous testing, continuous improvement and crucially, the protection offered by professional indemnity (PI) insurance to safeguard stakeholders.

By supporting this hybrid model now, the insurance industry can proactively address underinsurance without destabilising the market. An augmented strategy provides the necessary bridge to a future where fully automated AI solutions will one day become feasible, safe, and efficient. This is the model we are working towards.

A sustainable and customer-centric solution

RCAL’s  hybrid approach is not only a practical response to the challenges of underinsurance but also a more sustainable solution. Last year, this approach effectively avoided the equivalent of 4.5 million car journeys – a reduction of 1,027 tonnes of CO2 emissions.

In addition, the creation of a multi-skilled surveying and digital research team is addressing the skills shortage in this field, building a scalable model capable of meeting the sector’s growing demands. The customer experience is also transformed. This digital-first approach is easier to arrange, more affordable than traditional methods, and is designed to deliver results with greater convenience and efficiency for policyholders.

A call to collaborate for a resilient future

RCAL invites the industry to  consider this vision, supporting a model that navigates today’s challenges while preparing for tomorrow’s opportunities.

With careful planning, collaboration, and commitment, we can build an insurance landscape that is not only technologically advanced, but also resilient, equitable, and environmentally sustainable for all stakeholders.

Sponsored