PBBI offers P&C carriers a five-step approach to gaining a competitive edge
For the property and casualty insurance industry, Katrina demonstrated that the tremendous growth in property concentrations in catastrophe-prone coastal areas in the U.S. has vastly increased the potential for large catastrophe losses.
Even more importantly, says Bill Sinn, strategic industry director, Insurance Practice, at Pitney Bowes Business Insight (PBBI), Katrina forced insurers and reinsurers to reevaluate their risk management practices - including a review of both the mix of risks in their portfolios and their reinsurance protections.To get there, the industry took a harder look at how managing data -- in the form of technology that is driving innovation in identifying and mitigating risk across the enterprise -- relates to natural perils and disasters.
PBBI's response to this challenge, Sinn said, is what the company calls its Risk Management Maturity Framework, a five-step process for driving greater efficiency and accuracy in identifying, managing and mitigating loss exposure.
"The good news is that there is a lot of tremendous technology out there to help carriers succeed," he said.
Sinn explained that step one in PBBI's Risk Management Maturity Framework is data integration. As insurers continue to wrestle with this challenge, the goal is to advance from a product-centric model to a customer-centric model. Data integration is a key to success, and it is just as important for risk management initiatives.
"Many insurers are beginning to use today's data integration technologies to consolidate data, and present it accurately, completely and quickly to the destinations where it can support real operational value and greater profitability," Sinn said.
By its nature, however, insurance is a complex industry and consolidating individual customer data across business boundaries is challenging.
"Within insurance, much data resides in so many places," Sinn said, adding that most business processes are not designed to manage data outside their own sphere. So some data lies in a claims system, some in an underwriting system, some with agents and brokers, and a lot of untapped data is out there as well. "Because of these silos, much of the data is out-of-date, incomplete, duplicated in other places or just inaccurate for many risk management decisions.
"The true value lies in using data integration to form one single view of the customer," Sinn explained. "Having an accurate view of the customer, their demographics, the policies they own, their claims activity, their relationships to other people or customers -- these are all important steps in driving value in knowing and understanding that customer."
Moving to step two, data quality, Sinn said that PBBI's data quality platform allows insurers to first establish that the "data is fit for use" with a wide spectrum of data quality tools. For example, one especially important piece of the data quality issue lies with the customer's address. Statistics show that 40 percent of addresses entered into systems today contain errors.
"That means it's imperative for carriers to validate the names and addresses at the front end of their system," Sinn said.
Step three in PBBI's Risk Management Maturity Framework is data enrichment, which includes the use of GIS (geographical information systems), also known as location intelligence technologies.
"Most people don't realize that 80 percent of all insurance business data has a location component," Sinn said. "And as organizations capture and store more information, the need for GIS grows exponentially."
He noted that one of the more compelling aspects of location intelligence technology is how it can be leveraged in a host of business processes across the enterprise.
"Talk about a re-useable asset," Sinn said. "Location intelligence brings value to processes such as marketing and sales distribution -- including customer segmentation and target marketing."
He explained that it also brings value to risk assessment by providing intelligence on loss exposure and accumulation of risk. Finally, it brings value to the claims area around workload assignments, resource allocation and routing, as well as fraud detection.
Sinn said that to understand location intelligence, you have to get to the basic component, which is the geo-code. Geo-coding means assigning a longitude and latitude to a particular address or location. Geo-coding levels range from postal code (the least precise) to the street level code to the address point level (more precise). Once the address is standardized and the geo-code assigned, the next task is risk mapping -- taking specific risk data sets like flood zones and earthquake zones and wildfire models and layering them on top of the address.
"Placing it visually on a map, you can see how far the location is from a coastline. Does the property lie in flood plain? And the list goes on," Sinn explained.
The fourth step of PBBI's Risk Management Maturity Framework is data analytics, which is where carriers begin to derive real value to help differentiate themselves and sharpen their competitive edge.
With the geo-code and address standardization in hand, analytics means you can do a spatial analysis on that location - enabling the data geographically. Sinn said that it wasn't too long ago that underwriters had to look at data in an Excel spreadsheet and try to determine risk factors and loss exposures. But today, it's "amazing" how different data on a map can be. For example, spatial analysis lets you take an address and compare it to various risk factors and hazard data.
"You can look at PML exposures and monitor accumulations," Sinn said. "You can set aggregation thresholds, and even more importantly, you can gain quick delivery of value to business transactions, business reporting, and business analytics."
How different can data look on a map? It depends on the map, Sinn said. Looking at risk factors based on postal code might lead an underwriter to determine that there is not a large accumulation of risk in one area. But with a geo-coded address that is analyzed and visually represented on a map, the view is quite different - the accumulation of risk can be painfully apparent.
The fifth -- and final step -- of PBBI's Risk Management Maturity Framework is where data is "actionable," meaning how carriers use the data and the analysis to achieve success.
For example, today's P&C carriers need to make accurate and efficient location-based decisions. In quick fashion, they must determine if a given home, apartment or condominium is in a risk area for natural disasters such as floods, brushfire, hurricanes, high winds and hail. For success, the carrier needs the ability to better manage exposure, make underwriting decisions, and respond promptly to new policy applications.
By using the Risk Management Maturity Framework, the company not only would see an improved customer experience, but also have the ability to make real-time decisions on policy applications, rather than endure waits of up to 30 days. It also can significantly improve business efficiency and make much better-informed underwriting decisions based on the most comprehensive set of address-level geo-codes available.
In another example, Sinn said, an excess & surplus carrier might want to improve its underwriting practices, analyze potential catastrophe patterns and enhance its catastrophe management and claims response practices.
With the PBBI Risk Management Maturity Framework, underwriters from that E&S carrier can view policy concentrations and proximity to risk factors such as distance to coast. The claims and underwriting departments can query the policy management system to determine probable losses associated with an event.
"Generally speaking, P&C carriers can take the analysis a step further by looking at potential loss scenarios based on a natural peril or impending disaster," Sinn said. For example, projected paths of hurricanes or tropical storms can be overlayed on a map along with current policyholder addresses to determine potential loss exposures or claims activity.
He added that some carriers today are using mobile technology and other communication devices to alert policyholders of a storm that will be hitting their area ? and providing advice or guidance on steps they should take to protect their property. Other carriers are using spatial analysis to determine if a policyholder was in the path of a storm to determine if a claim was fraudulent or not.
"Jonathan Swift, the author of Gulliver's Travels, once said that 'Vision is the art of seeing what is invisible to others,' " Sinn concluded. "Today's technologies around data management and location intelligence have helped insurers come a long way to seeing what they could not see before. Best of all, the carriers using data management technologies are separating themselves from the competition while, at the same time, benefiting both their customers and their bottom line."
For more information, visit (pbinsight.com). A division of Pitney Bowes Software Inc., PBBI provides location intelligence technology and end-to-end customer communication management solutions and consulting services for P&C insurance carriers.
(The above piece is part of our continuing Insights series designed to highlight key products and services to our readers. This paid-for Insights was written and edited by Risk & Insurance®
on behalf of our marketing partner. Additional Insights can be found on our Web site at www.riskandinsurance.com/.)
October 19, 2011
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