ZestyAI, a provider of an AI-driven risk decision platform for the insurance sector, has published research suggesting that patchy and out-of-date property information is leaving insurers paying an ‘uncertainty premium’ in the reinsurance market, with costs reflecting missing knowledge rather than the true quality of their risk.
The findings come from a live poll held during an InsTech webinar, in which 71% of insurance professionals named incomplete or stale exposure data as their main obstacle when assessing property catastrophe risk. Far fewer pointed to conflicting stakeholder perspectives on risk (13%), problems verifying third-party data (11%) or trouble separating risks within comparable portfolios (3%). According to the accompanying whitepaper, 94 people answered this question. In a follow-up poll on what would make third-party property data more trustworthy, half opted for independent validation, while one third favoured proven predictive performance.
In its whitepaper, The Uncertainty Premium, ZestyAI contends that such shortfalls carry real consequences for reinsurance. Where reinsurers are unable to confirm key details about properties within a cedant’s book, they may rely on cautious default settings in catastrophe models. These assumptions can push modelled losses higher, which in turn may influence pricing, attachment points or the capacity on offer.
This means insurers holding higher-quality books may not be fully rewarded for them, while reinsurers can find it hard to tell strong portfolios apart from weak ones. Both parties lose out: cedants may be charged for uncertainty unrelated to their actual risk, and reinsurers may misprice books they cannot properly distinguish.
Roof age offers a clear example of how one flawed data point can shift a risk assessment. ZestyAI’s analysis showed that in 67% of cases, the roof age supplied by policyholders was out by three years or more compared with the verified figure. Some 43% of roofs were at least three years older than stated, which could lead to risk being underestimated, whereas 24% were at least three years newer, meaning sound risks could be overcharged or turned away.
The company further reported that 78% of carriers it reviewed in the Midwest, Great Plains and Southeast link Actual Cash Value (ACV) roof endorsements to roof age, with certain thresholds kicking in at only eight years. A discrepancy of just a few years in this single attribute can therefore alter rates, eligibility and coverage terms.
ZestyAI founder and CEO Attila Toth said, “Reinsurance pricing is only as good as the exposure data behind it, and for most of the industry that data is still self-reported, inspected once and left to age. When reinsurers can’t verify what a carrier knows about its portfolio, they have to price the uncertainty. That means a strong book can end up looking much like a weaker one.
“Everyone in the transaction needs the same complete, verified view of every property. A sharper view of risk benefits both sides, because capital finally flows to the risk that has been verified rather than to the uncertainty around it. ”
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