As we approach the peak of hurricane season, insurance industry leaders are preparing for one of their most demanding times of the year. With storm patterns drastically changing in recent years, the ability to prepare and anticipate risk and costs is imperative to the insurance industry.
As weather patterns change, this is where data-powered insurance solutions that can help mitigate cost and risk for both insurance providers as well as consumers. Insurance Technology Insider sat down with Lauren Effron, an insurance industry consultant, to discuss how technology and data are being integrated into the natural disaster arena of insurance.
The Winds of Change are Blowing…Literally
Because we are seeing storms hit areas that rarely or never see hurricanes, Effron explained that we can expect to see changes in insurance rates in coming years. Effron noted, “It doesn’t take a major hurricane season to effect major damage. It only takes one storm hitting in the wrong place.” This is especially applicable to areas that aren’t prepared for hurricanes as evidenced by New York and New Jersey after Hurricane Sandy.
Effron went on to explain that the insurance industry operates under two views about the propensity for hurricanes in certain areas: the long term or historical view and the near term view. A long term view estimates hurricane risks based on weather patterns of the last 100 years or so, meaning those regions that are regularly hit, like the south eastern seaboard, are really what dictates insurance industry rates. A near term view looks more closely at the patterns of the last five years, which have been more erratic, to make those decisions.
The internal struggle about which view is the most prudent or accurate is one that insurance leaders struggle with and, as a result, are turning to more data-driven and technological solutions. Effron stated, “It’s not a question of if hurricanes are going to hit all of these different areas. It’s a question of when.”
The Power of Catastrophe Modeling
This is where tools like catastrophe modeling come into play. Catastrophe modeling helps those in the insurance and reinsurance industries manage their desired risk and loss levels associated with a specific natural disaster and assess where resources will likely need to be deployed based on computer-assisted calculations.
Not only does catastrophe modeling play a major role in the planning, portfolio and risk management process, but it also is a key component of the claims and risk management process during and after the storm.
“Because all of the location data and the characteristics of the properties are embedded into the catastrophe modeling tool, the insurance and reinsurance companies can access real-time data as far as what locations are affected. We can then overlay maps to look at the path of the impending storm, along with environmental data to deploy resources and help clients in a very timely fashion,” said Effron.
Data Plays a Starring Role
All of this data is aggregated and shared among insurance and reinsurance companies to understand and share what the potential losses were after any catastrophic event. That information flow is crucial for financial considerations. After the storm, claims data is additionally used to better prepare for future events.
Clearly data analysis is a lynchpin in both planning and processing claims for natural disasters, but how can an insurance provider be sure they have solid, reliable data? In addition to traditional approaches like the old “common sense check” as Effron put it or building inspections before underwriting a building, the most dependable way to collect strong data is through a third party vendor. By cross referencing their own data with that of a third party, insurance providers can formulate a firm understanding of potential risk and damages.
What the Future Holds
Looking forward, Effron thinks the technology at the insurance industry’s disposal is only going to improve, specifically with the help of drones and cloud technology to access big data. She said, “They [certified claims inspectors] are going to be using [drones] to foster better claims data and get aerial photography. For example, they can assess what roof damage is very quickly without having somebody climb up on a roof now.” Big data allows companies to get a more accurate view of their risk before the event, which is the best case scenario.
That ability to not only conserve resources, but reduce fraudulent claims is something that will present huge benefits to the insurance community and its customers.
To learn more about how data-powered programs like geolocation intelligence are shaping the insurance industry, check out the Forbes Insight Report from Pitney Bowes entitled, “The Power of Place: How Location Intelligence Reveals Opportunity in Big Data”
