Getting it right: insuring to value is a fundamental that often is overlooked for short-term, illusory market-share goals.

An auctioneer wouldn't price an antique without knowing its age any more than a manufacturer would price a drug without knowing the cost of development. But decision makers in the property/casualty insurance business often overlook the full extent of their costs when pricing policies and end up paying clearly.

Insuring to value has long been accepted as a fundamental of sound and fair insurance pricing. Unfortunately, this fundamental of the business is often overlooked for short-term, illusory market-share goals.

In auto insurance, for example, carriers last year overlooked $15.2 billion in premiums because of rating errors or "leakage." Why would auto underwriters forgo an amount equal to 9.6% of the $157 billion in personal auto premiums written in 2003?

Part of the answer lies in the complexity of managing auto risks, which are moving targets. Unlike homeowners or commercial property risks, the basic facts in auto policies change constantly. Every year nearly half of all personal auto policies experience a change of drivers, and nearly one-third of U.S. households replace a vehicle. This means changes in driver assignment, annual mileage and other factors.

Not surprisingly, many of these critical pricing variables go unreported. An analysis by Quality Planning Corporation, ISO's rating integrity solutions company, found policyholders are five times more likely to report changes that reduce premium, such as reductions in drive-to-work distance, than report changes causing premiums to rise, such as mileage increases.

Reducing eating errors can significantly increase profitability. A corporation study found auto insurers can more than double their profits by cutting their error rate 50%,

Though the variables of homeowners and commercial policies do not change as rapidly or radically as in auto insurance, leakage is also a serious problem in property lines. Wildfires are a growing threat in several states. Many property writers are still reeling from the $2 billion shock they got from California wildfires last fall. As population density and residential development increase in woodland areas, insurers who don't price correctly for this risk will continue to be shocked--in some cases right out of business.

Writers of homeowners and commercial property insurance who can't calculate replacement costs quickly and accurately risk underpricing coverage and incurring poor loss ratios--or overpricing coverage and losing customers to competitors.

Carriers can underwrite equitably and profitably, provided their rating plans do not undermine insurance functions with incomplete and erroneous data from poor or missing information. The surest way to improve frontline execution is to obtain the best data, high-end analytics and automation available.

Automated error detection reduces leakage in auto insurance by combining the technologies of statistical pattern analysis, expert systems and database verification to produce an in-depth review of every policy in a carrier's book of business--at a low unit cost. Such technologies, for example, can spot auto policies with farm-use classifications in downtown Chicago, cars garaged at false addresses and grossly understated drive-to-work distances.

Databases and technology now make it possible to audit individual policy underwriting against billions of public records covering everything from accident records to correct addresses, vehicle symbol errors, marital status, age and more. The key is automated re-underwriting plans tailored to policies suspected of containing errors. Re-underwriting time and resources are committed exclusively to correcting or verifying questionable information through direct, nonconfrontational customer contacts.

With remarkable accuracy, automated address-specific solutions now identify, potential wildfire hazards for commercial and personal property risks. New technologies combine satellite images of fuel, slope of terrain and road access information to pinpoint wildfire hazards.

New Web-based, user-friendly property valuation systems, unlike typical insurance-to-value estimators, instantly generate cost values from prefilled detailed information about most individual properties from an extensive residential database. This offers integrated access to other essential underwriting information, including claims histories.

Analysts of the property/casualty insurance business see mounting evidence that another soft property/casualty market may be approaching--if it hasn't already arrived. As competition heats up, insurers will need fortitude to execute against core fundamentals. But they will also need new tools and emerging solutions to do the job.

Frank J. Coyne, a Best's Review columnist, is chairman, president and chief executive officer of ISO. He can be reached at [e-mail].