The steady advance in computer technology, coupled with a better scientific understanding of climate, has greatly expanded the array of tools available to help property/casualty insurers model and manage their weather-related risk. Insurance Networking News asked Bill Raichle, VP risk decision information for Jersey City, N.J.-based ISO Inc., how insurers can best make use of GIS tools.
INN: For insurers, what are the primary benefits of using GIS information?
BR: There are three primary benefits, and the industry is well down the road to implementing two of them. About 90% of property insurers now use geographic information systems for two purposes: accurate underwriting and rating and catastrophe risk management. This has become standard operating procedure in the industry. Insurers and supporting vendors have moved into maintenance mode, improving the quality and timeliness of data.
A smaller but growing number of insurers are expanding GIS deployment among their analysts for use in marketing, building risk models and better understanding their current books in relation to the larger market. The best work here is yet to be done.
INN: How can GIS be used to predict risk?
BR: GIS is an efficient engine for the manufacture of independent-variable candidates for insurer modelers. For example, a large homeowners writer uses data on community investment in firefighting communications and response equipment to predict burglary loss—and it works well. It works because communities that choose to invest in upgrading fire-mitigation capability and reduce crime might have the added benefit of sheltering their citizens from other hazards.
The creation of geospatial information is another innovation. For example, in personal lines auto insurance, new data features about where driving actually occurs are being created at a refined geographic level. If the majority of accidents occur close to home, then it seems natural to investigate complex geographic variables that add value to existing loss models. From an estimated loss cost perspective, this analysis examines the interactive effects of traffic environments, including numbers and types of businesses in an area, traffic density, driving patterns and public transportation usage; the natural environment, such as weather and topographical characteristics; and other factors, such as claim frequency and severity trends by state. These types of relative geospatial innovations can potentially apply directly to most lines of insurance.
INN: How has GIS technology evolved in recent years?
BR: It hasn’t. The underlying math, map making and coordinates have not changed much at all. The most beneficial advancements are coming from better data, and the flight to quality in GIS data has accelerated.
Base-level GIS data — the street files that drive geocoding — is improving all the time, and smart vendors are running files from multiple vendors. Tele Atlas “point” locations, county parcel information and NAVTEQ’s large breadth of roads can be combined for true high-octane results. We’ve also been adding new address information obtained from our customers to build a super street file, a best-of-breed candidate, if you will.
Overall, geocoding is approaching perfection with regard to positional accuracy. The next phase is to redouble efforts on the timeliness of updates.
The depth and quality of hazard data also is at an all-time high. In our case, we have databases that can identify 97% of the affected buildings in recent wildfires as being exposed to the hazard. And we make approximately 20,000 geographic updates annually to fire protection areas, station locations, hydrant coverage, automatic-aid response and so forth.
Consider the fact that insurers now have access to databases of hydrants, suction points and hauled water distribution for 85% of the U.S. population. This is a crucial ongoing investment.
INN: Can GIS pay immediate dividends?
BR: Out of the box, a GIS is about as exciting as a blank spreadsheet. But when insurers augment their internal policy and business data with high-quality, real-world GIS risk and market data, new business capabilities and solutions become possible.
Find out more about this topic by searching “Tying Risk to Geography Can Help Limit Exposure” at www.insurancenetworking.com.
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