Raising Location IQ

Let's face it. The insurance industry has never been considered an early adopter of emerging technologies. However, because of recent customer demand and pressure from ratings agencies, regulators, and investors, the industry has begun a mass migration toward greater implementation of location intelligence (LI) technology. Clearly, the element of “where” factors in critical decision-making in various areas of the enterprise, including policy rating, underwriting, portfolio risk management, claim management, sales, marketing, and distribution.

Nowhere is this more important than when dealing with extreme weather events. If the catastrophic events of recent years provide any indication, then insurers can no longer afford to analyze an event post facto. Today, it is crucial to have the capability to interpret an event in real-time and to then take swift action to minimize loss.

Real-Time Weather Feeds

Using LI technology, insurers can secure up-to-the-minute views of risk exposure as catastrophic weather events unfold. Integrating this intelligence with real-time weather data feeds allows carriers to assess which policyholders in a particular region are likely to be impacted by an approaching weather event. With the help of mapping technology, LI enables management to effectively identify, visualize, and estimate the maximum probable loss associated with a severe weather event.

Capturing location-specific information in a timely manner can help professionals proactively mobilize claim resources; determine locations for claim centers; select hotels and equipment for staff; and contract for supplemental adjustors and inspectors. By querying location-enabled policy management systems, the carrier's claim and underwriting departments can determine the number of potential policyholders that will likely be affected by the impending event and thus calculate the likely total losses incurred as a result. Using these analyses, the claim department can plan accordingly. It can estimate the number of adjusters and inspectors necessary to handle the incident, and arrange for them to arrive on the scene as quickly as possible.

This practice worked very well for some carriers in the wake of Hurricane Katrina. So well, in fact, that claim adjusters actually arrived on location before some insureds had filed a claim.

Carriers can also use location intelligence to identify when and where they will need to augment staff with independent inspectors and adjusters. This timely insight may even allow them to proactively strike contracts ahead of the competition, thus avoiding the scramble for scarce claim adjuster resources post-event. Of course, more timely service also aids customer retention by enhancing the perception of the carrier. In addition, more efficient service can help mitigate losses, such as those arising from business interruption.

Going Mobile

So, how is it possible to locate a property that has been totally destroyed by a storm if all of the discernable landmarks have ceased to exist as well? In the field, claim adjusters can use GPS-enabled mobile devices to pinpoint insured properties quickly and efficiently.

For publicly-traded companies, the market expects an almost instantaneous response to the question, “How much will this storm cost?” These companies can now use location intelligence capabilities to provide stockholders and financial constituents with real-time assessments of an event's likely impact. For example, one carrier was able to accurately estimate its risk exposure in the region of last year's California wildfires. It alerted the financial media that the exposure was minimal, the result of which was no drop in stock prices.

Analyzing claim patterns can potentially provide better information to both fraud investigators and underwriters. LI can be applied to an individual policy claim evaluation, or in a batch process to flag “outliers” meeting certain criteria that merit further review. For instance, claims falling outside the modeled region of a storm's influence would prompt investigators to take a closer look.

Following recent storms in the U.K., a simple model of an area impacted by a windstorm identified a number of claims that were significantly outside of the storm zone. A letter requesting further information from claimants — which emphasized the criminal nature of fraudulent claims — resulted in a 95-percent reduction in these claims.

Addressing Accuracy

All of the benefits of this type of intelligence hinges on the accuracy of the policyholder's location. The old adage of “garbage in, garbage out” applies to location, meaning that every possible effort must be made to maintain the quality of every policyholder's address information.

In the wake of Hurricane Katrina, many insurers have embarked on programs to validate, cleanse, and augment existing policyholder address information, all while instating required processes, procedures, and technology to ensure that data is entered correctly into their systems moving forward. In its May, 2006 feature “Keys to Strong Catastrophe Risk Management,” A.M. Best highlighted the importance of accurate geocoding as an essential ingredient of proper risk management practice.

Location intelligence is also helping everyday business users make daily business decisions, as a result of technological enablers such as web services, SOA, location-enabled business intelligence applications, and to open standards such as ACORD XML. More than ever before, the technology is able to dynamically access, integrate, manipulate, analyze, and overlay information from disparate sources, even from the legacy mainframe systems that are still pervasive in the insurance industry. With location as the key, business users can gain valuable insights about their data, which can translate to timelier, effective and profitable business decisions.

As location intelligence technology advances and becomes ubiquitous in the insurance industry, both carriers and their customers will benefit from the flexibility and foresight it provides.

Bill Sinn is strategic industry manager of insurance at Pitney Bowes MapInfo and Group 1 Software. He may be reached at Bill_Sinn@G1.com.