In the aftermath of the terrorist attacks in 2001, many property/casualty insurers are now reassessing risk assessment strategies in metropolitan areas. As they do, the process involves looking deeper beneath the surface-literally.For example, how does an underground parking garage in Midtown Manhattan impact an insurer's risk position? Years ago, insurers that write commercial automobile insurance might have considered an underground parking facility to be a safe haven because autos were assumed to be better protected beneath street level.
But today, insurers that write commercial insurance in metro areas know that structures connected to underground parking garages are higher underwriting risks. The reason: These facilities have the potential to invite terrorist attacks.
Experts say that to better pinpoint risks for establishing commercial rates and mitigating losses, underwriters need better information. In 2004, it became evident to executives at Greater New York Insurance Cos. that technology represented a means to an end-providing more fluid and exact risk analysis to improve underwriting decisions.
Greater New York Insurance Cos., a New York-based provider of commercial multi-peril, commercial auto and workers' compensation policies, writes coverage for a significant number of condominiums and commercial establishments in New York. Because of that exposure in the nation's largest city, the events of Sept. 11, 2001 shook the company to its core underwriting roots.
"The business objectives for underwriting at our company changed dramatically following September 11," says Kathleen Hurley, assistant vice president of management information systems. It's incumbent on the provider to know-in any given square-foot or square-mile area within New York City-what its risk exposure amounts to, in terms of premiums collected and potential claims payouts.
Great New York Insurance could then use this information to either scale back coverage in that particular area, or raise premiums. The carrier also wanted to pinpoint product-related exposure, which would enable it to determine risk exposure of its respective insurance-at any time.
Furthermore the company wanted to improve its risk assessment capabilities, says Hurley, to enhance its position when purchasing reinsurance coverage.
Greater New Insurance is now using a location-based geographic information system (GIS) solution developed by MapInfo Inc. to get a much clearer handle on its risk position. The technology can help insurers reduce underwriting 'leakage' or inaccurate matching of risks to pricing and rating tiers, industry experts say.
"The combination of GIS-related data and rules-based expert underwriting systems can streamline the underwriting process and reduce costly errors," explains Deborah Smallwood, vice president of the insurance practice for Needham, Mass.-based Tower-Group. "Underwriters can segment risk more finely by incorporating more granular geographic data."
At Greater New York Insurance, the underwriting unit is separated into two camps composed of senior line underwriters and junior underwriters, the latter of which obtain information and perform some risk analysis.
For both new business and renewal business, the carrier has 17 underwriters assigned to three of its branch offices, located in Massachusetts, Connecticut and New Jersey. A much larger contingent of underwriters are situated in New York City. All total, the company has about 400 employees.
The property underwriting process once consisted of taking out a map and entering the values of the insured properties, says Frank Chiapetta, new business underwriting manager for Greater New York Insurance Cos.
"We need to know the cumulative insured properties within one geographic area. We ask questions like, 'Are we too concentrated in one area and thus becoming more vulnerable to a catastrophic loss?' I came into the business 30 years ago, and for a long time companies would physically record these values on a map. It involved a great deal of cross-referencing," he says.
A collaborative effort
The involvement of the carrier's IT staff helped underwriters in Chiapetta's department make the transition from paper to digital mapping
The insurer's IT department for years has had a like-minded relationship with business, Hurley says.
"It's a very fine line between what IT thinks is the right idea and what the business thinks. We make a list and say, 'there are two products and this is why product A feels right and why product B looks right.' We sit around a conference room table and usually come to a logical conclusion."
One key is getting underwriters to embrace technology rather than having them operate on the theory that the technology is designed to make their jobs obsolete. "With insurers, any time we discuss the use of our technology, the message is, 'we're not trying to take away your job, we are just trying to help you do it better,'" says Kimberly Morton, director of location intelligence risk management, for MapInfo, Troy, N.Y.
The IT unit brought the MapInfo solution to top underwriting executives to make sure they could use the technology on a daily basis.
"IT works with us all the time to try and deliver what we need and do so in an easy-to-use format," Chiapetta says. "We have people with different skill levels using technology. If it were ever apparent that something was not easy to use or not compatible to work in our environment, we would not consider it."
Using a Web browser, underwriters using MapInfo can either point to an address on a mapping server, type in an address, or type in a ZIP code and do a search using pre-defined locations, such as Wall Street, Yankee Stadium or the Empire State Building.
"Without the technology we would not be able to make the accurate underwriting decisions we're making," states Hurley. "The bottom line is, it's about better business."
Insurers such as Greater New York Insurance that are using GIS technology to improve underwriting are just tapping into the technology's full potential, TowerGroup's Smallwood says.
"The real value of GIS technology cannot be realized without the benefit of an integrated strategy. Insurers need to consider applying the same effort toward GIS as they do with business intelligence and data mining," she explains.
Smallwood believes that when the technology is integrated with a carrier's policy administration system, for instance, the insurer could achieve straight-through processing via automated underwriting.
To bring it another step, this integration would enable a carrier to use GIS to obtain information from a customer profiling database to help manage the development and validation of rating and prices.
However, insurers need to develop more cohesion between their business units and IT, Smallwood says, for successfully integrating technology with business strategies.
"I think that business units within insurance companies do better understand the capability of technology, but at the same time IT units within carrier operations often leapfrog the businesses in terms of knowing the relevant IT product offerings that regularly enter the market. Many times, businesses trail IT and they need to remain in the loop-they need to catch up," Smallwood says.
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