A joint presentation by Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (CMHC) and Philip Kaszuba, president, DMTI Spatial, offered an insightful perspective on what the insurance industry can expect in the months and years to come as they struggle with the impacts of climate change; and on the role location and visualization can play in improving overall efficiency, policy development, customer service and the bottom line.
McGillivray’s leading presentation, “The trend to more and larger catastrophic losses in Canada,” addressed the growing importance of location in real-time risk management that can help businesses better manage in the face of change in both the number and severity of natural catastrophic events that have occurred over the past several years and projected for the future.
There has been dramatic increase in natural catastrophe trends and insured losses in Canada and globally as a result of hydrological (river and flash floods, storm surges and landslides) and meteorological (severe weather, winter and tropical storms, hail, tornados). Storm losses in Canada in particular have been earmarked as a key issue for the insurance industry moving forward. Since 2009, Canada has experienced losses in excess of $1 billion annually, with the peak occurring in 2013 at over $2 billion in insured damage. In fact, 2013 delivered Canada’s costliest and third costliest insured loss events of all time (the Southern Alberta flood in June and the GTA flood in early July), relegating the 1998 ice storm to second place. It was also the first year to record $2 billion in natural catastrophes, and the fifth consecutive year of billion-dollar events. (Previous billion-dollar years were 1998 due to the ice storm and 2005 with the August 19 GTA rainstorm).
One of the more disconcerting issues for the industry is that homeowner insurance has tended to be more stable than auto, and therefore more profitable and easy to manage. Given the events of the past five years, however, homeowner insurance is performing far worse and can no longer be relied upon as a profit centre under the current circumstances. McGillivray cited three causes: more people and property are at risk due to population density in urban areas, aging infrastructure and climate change.
When combined, these factors are increasing liability and exposing directors and officers to risk. In addition, fire insurance has been eclipsed by water damage claims, a trend that that is having a significant impact on how policies are quoted and written, and driving a pressing need for accurate, up-to-date location data. Larger insurers with in-house resources such as climatologists, GIS experts, seismologists, etc. have engaged in a proliferation of modelling over the years to manage this, yet other smaller organizations have been restricted by a lack of expert staff resources.
Insurers are not the only parties that can benefit from accurate location-based intelligence. Regulators also need to know why companies do what they do, how they do it and what will happen in the future.
McGillivray pointed to a number of challenges in terms of current location data practices. Canadian government weather hazard data is not housed in a central repository and spread over multiple departments; the format and quality of this is inconsistent; some data has been destroyed or cut back; and other data is not digitized. There are also discrepancies in terms of accountability for the data. Wildfire and flood measurement, for example, is a provincial responsibility, and can vary considerably in terms of quality and format. Flood mapping has not been kept up to date since the 1980s.
Kaszuba responded to these data challenges by outlining six steps to leveraging location that will have a significant impact within the entire ecosystem of an insurance organization and on the breadth of the value chain. DMTI has worked extensively with CMHC, Genworth and Canada Guaranty Mortgage Insurance to develop ways to use location information to better manage business, he noted.
The first step involves the underwriter and claims community, where location-based data can help participants understand the risk associated with the policies they have today, and visualization capabilities can allow users to quickly grasp the potential of information in policies for the future. Organizations can use location to build predictive models based on better understanding of the customer and the impact that hazards and catastrophic events may have, translating this insight into policy structure and pricing.
The second area Kaszuba addressed was operations, or the ability of location data and visualization to assimilate disparate pieces of information to support instantaneous decision making, based on a consistent methodology and approach to managing risk, which can generate productivity improvements across the underwriter community. Kaszuba cited a Deloitte study which found that 85 percent of a corporation’s databases can be logically and appropriately linked using location data.
Step number three involves using location and visualization to improve back office functions, driving proactivity around portfolio analysis. For example, a claims environment can be mapped out against an entire portfolio in order to understand potential or emerging trends and make aggregated decisions around policy writing. This can help the underwriter to better define the zones that are actually impacted by catastrophic events or other factors, and investigate in more granular detail before making decisions around levels of restrictions needed to protect a business portfolio, manage accumulation and improve organizational performance.
The fourth area is post-event analysis and activity. DMTI’s post-event analysis and service is designed to help organizations manage crises, as well as build a history that can be used to manage risk and examine a portfolio in more detail. In the case of the Calgary floods for example, DMTI Spatial was able to provide financial institutions with address-by-address information about properties impacted by the flood and to what degree they were affected. This enabled insurance organizations to service customers more quickly, and proactively reach out to customers.
The fifth step is marketing. Location can unlock different data sets so that insurers can find new customers, gain a better understanding of existing and potential customers, determine how to serve them as efficiently as possible and ultimately, increase profitability.
The final step is technology implementation, including cloud-based architectures and infrastructures that DMTI has developed to deliver the right information in the right manner in milliseconds. A second technology benefit is highly scalable infrastructure – last year DMTI processed over 450 million transactions around address recognition and location information – and the final consideration is the need for access to Big Data, which DMTI delivers via high precision geocoding of information.
Kaszuba concluded by reiterating that the real power of location can be found by connecting data, analysing it, and acting on the information in hand.