Location Intelligence

One of the most important pieces of policyholder information lies right under the gaze of insurance companies – location. Insurance companies have collected client geographical information for decades, but the question is: Do they have the most accurate data?

Too often that crucial location data remains unverified or, perhaps worse, underused, which affects how the risk might be underwritten.

Enter “location intelligence,” defined as the ability to visualize spatial and geographic information to gain critical insights and make better business decisions. Instead of rows and columns of static data, location intelligence software allows insurers to view rich, colour-coded maps and work with visually interactive analytics.

Geocoding

Geocoding is an essential component of location intelligence. The process of geocoding an address involves assigning a unique latitude and longitude to a physical location. It can pinpoint the location down to the building rooftop (parcel centroid) level – an unprecedented degree of “point-level” accuracy. Point-level geocoding can very precisely determine a property’s distance to the coast, for example, or its proximity to a fault line or an area prone to wildfires.

Location intelligence represents an entirely different approach to managing risk exposures. The technology provides business users with the ability to overlay seemingly disparate “layers” of location data – i.e. policyholder locations, flood zones and fire districts – for analysis. Once these layers of location data are associated, they can be used in a variety of ways, including mapping/visualization (i.e. does the policy appear to be in a flood zone), spatial querying (i.e. show all policies within 100 meters of a designated fault line) and calculations (i.e. what is the distance to the nearest fire hydrant?).

Leveraging Location

By leveraging location intelligence, insurance companies can integrate data about policies, claims, weather, terrain, geographical boundaries and demographics. Insurers now have the ability to visually identify their exposures, pursue risk exposure management and conduct strategic catastrophe management planning.

Indeed, catastrophe management is one of the prime areas in which insurers at the business level can put location intelligence to practical use. The insurance industry has taken sharp notice of the rising trend in costly natural disaster events in Canada and its accumulation of risk in key geographical areas. This is especially true for water damage, severe rainfall events and potential earthquake exposures. Without question, implementing best-in-class catastrophe management for natural disasters has become one of the most critical strategic business drivers for the property and casualty industry.

Yet in some cases, insurers have relied on incomplete risk management practices or inaccurate location data in their underlying analysis of risk exposure. For example, legacy underwriting processes have traditionally used postal code tables – and in some cases, on-site inspection – to assign rating territories, manage risk and set premiums. However, postal codes were never designed to pinpoint physical addresses – their sole function is to optimize mail delivery. Postal codes typically aren’t precise enough to accurately calculate proximity to risks, such as a property’s distance to an exposed coastline or a major fault line.

The technology behind location intelligence leverages a variety of data sources including aerial maps, geographic information systems (GIS), consumer demographics, as well as insurers’ own policyholder information. As such, it can identify to a significantly greater level of detail and granularity the kinds of risks insurance companies are underwriting and whether there is an aggregation of these risks. Insurers can also project potential loss scenarios given this specificity of location data.

It can help insurance carriers understand total financial exposure to a given event, so that they can more effectively manage reinsurance treaties and geographic risk exposure on a real-time basis. Spatial technology provides a superior vantage point from which to measure geographic risk accumulation; it also helps perform “what if” scenario analyses that consider a multitude of potential loss scenarios.

Location intelligence can also be used for:
• portfolio risk aggregation analyses;
• realistic disaster scenario and probable maximum loss (PML) analyses;
• visualization of third-party catastrophe models;
• real-time management and regulatory compliance reporting; and
• seamless integration with existing databases, legacy systems and IT infrastructure.

The end result is a more dynamic, intuitive management view of a company’s entire catastrophic exposures and portfolio risk aggregation. It represents a more intelligent approach to location risk.

Location-Enabled Underwriting

Location intelligence can also be integrated into real-time underwriting decisions. Using a location-enabled underwriting workstation, the underwriter can validate a policy address and view it in proximity to other policies or a variety of geographic risk factors – including earthquake faults and epicenters, flood zones, brush zones, fire districts and hydrant locations, hail and wind storm sites, tornado sites, historic hurricane paths and coastlines. The underwriter has the ultimate flexibility to incorporate any information into risk analysis related to location.

Location intelligence can also be integrated into a carrier’s automated underwriting and rating applications, working within rules engines to feed the appropriate location information needed to score or process geographic risk rules. Policies can be rated more accurately when rating territories can be visualized, helping to minimize underwriting leakage and ensure regulatory compliance.

Take claims management as another example. In the face of a prospective claims event, location intelligence technology enables carriers to analyze on a virtually real-time basis those regions likely to be most affected.

In the case of a hurricane, live weather feeds can be integrated into location-enabled systems to track the storm’s wind fields and match them against policy locations so estimates of probable losses can be calculated and claims managers can proactively assign staffing resources. Individual adjusters can use this same information to better plan their daily agenda to cover losses in proximity to each other.

Location intelligence technology can also help detect patterns of fraud. By viewing storm paths and matching these against claims, anomalies may become apparent and flagged for further investigation.

Marketing Edge

In terms of sales, marketing and distribution, location intelligence helps carriers optimize their sales processes by more effectively routing sales calls by geography. It also plays a key role in identifying areas of market potential and aligning sales, marketing and broker/agent networks to capture that market potential. Using demographics and lifestyle information to profile best customers and predict product-purchasing behaviors can help brokers and agents more effectively up-sell and cross-sell existing customers and identify the highest potential lifetime value of new customers.

Insurers are increasingly recognizing both the pervasiveness of “location” as a critical aspect of information gathering and the tremendous impact that “getting location right” makes on their bottom line.