A Farmer's Almanac for the Technology Era: Can Technology Replace Local Knowledge?
By BILL SINN, strategic industry manager, insurance, Pitney Bowes MapInfo and Group 1 Software
However, new technologies are providing insurers with a greater understanding of the vulnerability of buildings to natural disasters (such as floods and hurricanes) in specific locations. Is it possible--or feasible--to replace local knowledge with these technologies?
By definition, natural disasters are infrequent events that cause severe loss, injury or property damage to a large population of exposures. They are hard to predict in both timing and frequency and even harder from which to recover.
But in just the first six months of this year, the United States was hit by 109 natural disasters--19 more than the first half of last year. And that trend seems to be continuing. Pick up any newspaper and you'll see a host of disaster-related headlines:
--Magnitude 5.4 earthquake hits Los Angeles
--Hurricane Dolly churns up the Gulf of Mexico and Texas
--Wildfires ravage California and Florida
--Flooding drowns the Midwest
Much of the industry's recent attention has focused on the upsurge in hurricanes and the increasingly vulnerable level of both residential and commercial development in coastal areas of the United States--which now exposes people and property to an entirely new scale of destruction.
But while hurricanes may be catching the limelight, insured losses from severe weather such as thunderstorms and wind damage are taking its toll on the industry. Damage from thunderstorms now stands at $8.1 billion for the first half of 2008, exceeding all previous years going back to 1980.
Property/casualty insurers know their risks have changed in recent years--not just their exposures but their response efforts--and most are looking to technology to help them prepare to meet these threats head-on.
MORE BOOTS ON THE GROUND?
Does local knowledge still play a key role in addressing these needs?
Agents, claims inspectors and adjusters have prided themselves on the depth of knowledge they have built up of their customers over their many years of working in the insurance industry. And insurers have come to rely on that wealth of knowledge and experience in acquiring and nurturing the value of these customers.
The largest challenge today is that much of that valuable information is "locked" in the head of the agent, claims inspector and adjuster. And if you look at the latest insurance trends, many of these professionals who have worked 40+ years in the business are fast approaching retirement age.
With the advent of geographic information systems and other new informational databases, local knowledge can be readily supplemented with key, detailed information. This information can provide a true value-add to the agents' and claims inspectors' roles--enabling them to build profitable relationships while providing faster, more efficient customer service.
LOCATION INTELLIGENCE: YOU'VE COME A LONG WAY BABY
GIS applications are used for capturing, storing, analyzing, managing and presenting data that are linked spatially to location. One of the major impacts of GIS has been with underwriters--helping to elevate them from the world of Excel spreadsheets and "push pin" mapping to a whole new and more sophisticated level of risk identification, management and mitigation.
Take James River Insurance, an excess-and-surplus lines company, as an example. This company uses location intelligence technology to improve its underwriting practices, analyze potential catastrophe patterns, and enhance its catastrophe management and claims response practices.
In the wake of Hurricane Katrina in 2005, claims adjusters from James River Insurance actually got to some locations before the insured or before the agent knew there was a claim. According to Brian Haney, vice president and chief actuary of the carrier, "We were able to provide initial estimates of exposure and potential loss before the storm even hit the shore and then validate these through their on-site inspections."
Speed, accuracy and efficiency are critical to providing good service and managing costs in the claim arena. Analytical approaches to call-center staffing, claims forecasting, claims offices and adjuster allocation, real estate planning, fraud detection, and claims response and estimation, help control costs and reduce loss ratios.
GIS TO IMPROVE CLAIMS RESPONSE
In the wake of a disaster, new information databases and GIS technologies can help inspectors and adjusters become more efficient in their response. In some cases, detailed property features, including square footage, construction type, year built, roof type and other relevant building characteristics for many residential properties can be pre-filled into claims applications. This arms the claims adjusters with key information before they even meet with the homeowner and lets them focus on more specific details of the home instead of the basics.
GIS systems also offer the capability to overlay policyholder details onto a "footprint" of a natural disaster--pinpointing its location to see if it falls in or out of a hurricane track, for instance. Some technologies can even provide estimates of the level of damage based on the policyholder's proximity to the worst areas of the event.
Analysis using GIS technology also helps claims departments determine the number of adjusters and inspectors that will be necessary to handle the incident and to have them on the scene right after the "wind starts blowing."
In addition, many carriers can now estimate when they will need to supplement their staff with independent inspectors and adjusters. This early insight allows them to contractually "lock-in" the necessary independent claims adjusters they will need to service its customers, ensuring that it has the resources to meet customers' needs and avoid a scramble for scarce claims adjuster resources post-event.
When it comes to the limitations of technology, there is one important item to note. It lies with the agents'/adjusters' skill to manage customers' expectations, where communication and reassurance becomes increasingly critical in providing support to an emotionally charged homeowner whose possessions have just been washed away in a disaster.
October 15, 2008
Copyright 2008© LRP Publications