By Jonathan Guard, Director, Commercial Markets, LexisNexis Risk Solutions, UK and Ireland
Catastrophic events can have massive consequences for an insurance provider who has found themselves over exposed in one geographic location due to an extreme event such as a flood, fire or an act of terrorism. As such, all property insurers need a clear picture of their risk accumulations to help guide their underwriting strategies and calculate their exposures at any given time.
Any gaps in understanding the risks presented by a particular property can be filled by data and predictive analytics. Underlining the significant changes occurring in this market, 86% of the insurers we spoke to said they believe that data and analytics will transform their business.
Of course the use of perils data is not new to this market. The emergence of perils mapping tools which allow insurance providers to pinpoint the risks associated with specific geographic locations, have played a valuable role in supporting commercial property underwriting.
Mapping tools enable insurance providers to visualise, calculate and underwrite property risks – they can see an address they are insuring and how that is placed in respect of perils such as flood, subsidence, contaminated land, as well as proximity to other buildings to understand the risk of fire spread or flooding.
Based on the data associated with that address, a risk score provides a simple guide for the level of risk posed by each of the perils which the insurance provider can use at the point of quote or underwriting.
But now, the capabilities offered by these tools are extending not just in the depth of risk understanding but the breadth too.
First looking at the depth of data, appreciating that an address in many cases of commercial insurance can cover a large footprint – one insurance risk score for that address may actually be misleading. Consider a farm, a factory or industrial estate all under one address. A factory covering 1000 square meters could quite feasibly have a different flood risk at the front of the property to that at the back.
As such the next stage in the evolution of mapping systems has been to use building footprint data, using the outline of the building to determine the environmental risks. In our analysis, 400,000 additional UK addresses were found to have a level of flood risk, based on the building footprint. This knowledge combined with real-time flood alerts direct from the Environment Agency will help put insurance providers in a much more informed position to deliver fair pricing and support customers in a flood event.
In terms of the breadth, mapping tools are now allowing insurance providers to overlay and visualise the geographic spread of their property portfolios enabling them to calculate where risks are accumulating and understand where their exposures could be in an extreme event. Monitored zones for flood and other perils like escape of water can also extend to trading and business intelligence functions such as broker performance, new business, claims or quoting activity. For example, a broker might wish to grow their market share and commercial property business in a given city. They could draw a Monitored Zone and any new quotations, policies or claims generated within the zone will be flagged during various steps in the insurance process.
This helps track any marketing campaign and its success in lead generation, through to new business and ultimately the profitability of the insurance providers’ business. These Monitored Zones provide the means to quickly incorporate a ‘locational’ code that can influence pricing, underwriting and other business decisions.
It is clear that mapping tools such as LexisNexis® Map View are becoming much more than just underwriting tools. In time they will allow policy history and other new contributory data to be overlaid with the perils risk data. This is going to be a huge leap forward leading to new types of risk models, creating new insights to inform every stage of the insurance continuum and helping the commercial property market move towards a more digitised customer journey.
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