The use of location intelligence technology in the insurance industry has grown exponentially in 2006, and it's no wonder. The devastating 2005 hurricane season made it painfully evident to insurers that they needed to base their risk management decisions on better data and augment their catastrophe modeling with new tools and practices. Location intelligence technology offers a combination of software, data and services that enable insurance companies to detect potential risks and opportunities.
With location intelligence technology, insurers are able to visualize their catastrophe-model results and go beyond them to perform a "what if" scenario analysis and manage their portfolio risk aggregation in real time. That's important because, in the face of an impending catastrophe, carriers can mobilize their claims resources and notify customers in regions that are likely to be affected.
In May, A.M. Best & Co. Inc. reiterated the importance of location intelligence in its catastrophe risk management methodology statement. The statement included expectations that carriers geocode all properties, monitor defensible aggregate loss exposure limits, consider potential loss scenarios, ensure that catastrophe exposure is a frequent and consistent process, and integrate risk management rules into underwriting.
Another impetus for property/casualty carriers to implement more robust location intelligence systems in 2006 was the volatility of the investment market. The wide adoption of underwriting to a profit has led many carriers to implement more efficient and accurate ratings systems that allow them to better price risk and to implement more granular risk segmentation systems.
With location intelligence, insurers can better identify and nurture the preferred risks in their portfolio, eliminate business when necessary, and reduce or balance exposure with proper pricing.
An additional fact leading to greater adoption of location intelligence in 2006 was the need to better demonstrate regulatory compliance with state insurance auditors. Insurance carriers have digitized their rating territories and implemented more accurate policy-address validation systems to perform better audits and show that policy ratings have been properly applied.
This year presented significant challenges for insurance companies, and the need to implement more robust location intelligence systems is stronger than ever. The forward-thinking companies that have adopted location intelligence are better prepared to manage the unforeseen obstacles ahead.
is a director of MapInfo Corp., a location software and data vendor headquartered in Troy, N.Y.
December 1, 2006
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