An estimated 79 million adults, or 32% of the adult population, lived in a shared household in 2017. This uptick in shared household living comes in many different types. According to recent Census statistics, a third of young people aged 18 to 34 lived under their parents’ roof in 2015, and almost nine in 10 of the young people who lived with their parents a year ago are still living there. Additionally, there is an increasing trend of parents living with their adult children. Today, 14% of adults living in someone else’s household are a parent of the household head, up from 7% in 1995.

This trend of shared living arrangements has been steadily increasing due to both social and economic factors; however, it also raises the risk for homeowners’ insurers. This increased risk is, in part, because more occupants in the home can easily lead to increased wear and tear. A TransUnion internal analysis showed that 20% of households have three or more adults residing under one roof and these households pose a higher risk. More specifically, households with five or more adults are 40% riskier than those with only one or two. The analysis also revealed that households with adult children of any age are 1.2 times riskier than policies without. Despite this, most homeowners’ insurers aren’t doing much to learn who is actually living in the properties they insure. This in turn distorts the risk associated with properties that fit this profile.

It’s important for homeowners’ insurers to identify occupants and understand their behavior and risk attributes in order to more comprehensively segment risks and more accurately price policies. Below are a few ways insurers can make sure they are providing accurate quotes while understanding the full risk picture.

Understand that behavior is relevant

In order to fully understand who will be living in the insured property, it is essential to not only know who the occupant(s) are, but also have insight into the occupants’ behavior. So, what types of behaviors and attributes constitute a property occupant risk? The insurance industry has widely accepted that credit-based insurance scores can inform a consumer’s overall risk profile. Analysis has shown that volatile credit behavior strongly correlates to increased insurance risk when it comes to non-weather related property losses. As TransUnion’s property insurance score illustrates, consumers with the lowest property insurance scores were nearly 60% riskier than those in the highest category.

Considering how telling a consumer’s financial behavior can be with regards to risk, it is only logical to consider other consumer behaviors as well. TransUnion has uncovered additional behavioral data that is telling of property risk. In particular, a consumer’s address history and address stability, which essentially means how often the consumer moves and how long they reside at the same address, is one factor to be considered when evaluating risk. Approximately 10% of the population moves annually, but from a statistical standpoint, moving more than the average consumer is a red flag for insurers, as a high frequency of mobility can be indicative of a higher overall risk profile. For instance, according to the TransUnion analysis, 23% of movers received a traffic violation within one year of moving. Leveraging traffic violation behavior has also shown promise as a measure to better segment property risk. Additional TransUnion analysis has shown that incorporating court record violation data as a property rating element provides 2x lift improvement^.

Insurance companies strive to accurately assess risk and assign a monetary value to it. Insurers pricing policies based solely on the characteristics of the property, such as geographical location or age of the roof, are missing out on valuable data that goes beyond the physical property. For homeowners’ insurance, occupants, and their behaviors, are just as relevant to setting the appropriate premium as the home itself.

Take a cue from auto insurers

The notion of documenting every individual that will be using the asset has precedent. Auto insurers list the names of every driver of the insured vehicles on their policies. Auto insurers know every driver’s date of birth, driver’s license number, and driving history. Auto insurers also keep such data in mind when they price their policies. Depending on the policy contract and coverages, the auto insurer may not cover an accident when the driver of the vehicle was not disclosed on the policy.

By contrast, homeowners’ insurers oftentimes only require information for the primary owner(s) of the property. Unlike auto insurance, a homeowners’ insurer can be responsible for covering losses on the property, even if the loss or claim is caused by a person the insurer did not know was living there. Some homeowners’ insurers have recognized this shortcoming and have incorporated rating elements around number of occupants; however, they have been unable to determine the best way to verify this information, short of relying on self-reported data.

The main concern with so many people living in a house is the increased pressure on the home. There is more everyday damage, more utilization of systems and more people coming and going; however, that’s not necessarily being accounted for during the underwriting process when insurers are setting customers’ premiums and deciding which homes may require additional inspection.

Potentially, this can be problematic for homeowners’ insurers for a multitude of reasons. If homeowners’ insurers can gain a better view into who is living in their insured properties, they will be able to price their policies more accurately in relation to the anticipated risk. They can also determine which risk indicators, such as traffic violations or address stability, are present in the occupants’ histories and may signal a future loss. Essentially, insurers should be investigating different ways to not only obtain information on how many occupants are in the home, but also methods to validate consumer-provided information quickly and easily. This seems like an impossibly difficult task, but there are a number of ways to improve the process.

Keys to Improving Accuracy

While occupant accuracy has historically been elusive to homeowners’ insurers, in part because the information is difficult to validate and verify, it is not impossible. Below are a few tips that insurers can consider incorporating to help improve pricing and underwriting accuracy.

• Consider mechanisms to capture and rate the entire household: Much of the hassle can be removed from the pricing and underwriting process by implementing tools that prefill occupant count or occupant names as part of the application process. Not only is this helpful to insurers, but it also makes the application process easier and more seamless for the consumer.
• Incorporate new data to enhance underwriting and rating based on the entire household: It’s important to understand the occupant dynamics before providing an accurate, initial quote and eventually adequately pricing the policy. This requires insurers to be familiar with each occupant’s mobility, stability, and whether or not the home is multi-family or multi-generational. Insurers can gain more insight into individual occupants by analyzing address history, utilizing stability scores or implementing underwriting risk alerts.
• Leverage trended and alternative credit data to improve underwriting accuracy:

Insurers can combine data sources for additional insights. For example, trended credit and alternative credit data, in addition to the information obtained from applicants and potential policyholders, can provide insurers with a more comprehensive view of financial behavioral traits, which can help more accurately price policies and mitigate risk.*

• Apply additional occupant behavior data during the rating or underwriting process:

While on the surface, auto variables may not seem important for the home insurance market, evaluating a consumer’s driving history during the rating or underwriting process has proven to be helpful in assessing a risk profile.

Homeowners’ insurers are behind the curve on identifying and understanding the occupants in the properties they are insuring. With the rise in shared household living, homeowners’ insurers need better data about who is living in the properties they insure, beyond the property owners. Fortunately, the data — and solutions — are out there.

*Refers to household members who are of driving or credit age or above. These are the members for whom TransUnion can provide relevant information.