Data-Driven Underwriting

The explosion of new data sources is revolutionising the insurance industry. Artificial Intelligence (AI) is enabling insurers to capture, unlock and analyse data in ways that people alone simply cannot.

However not all data is created equal – ensuring you make the best underwriting decisions means relying on robust, accurate data and using powerful tools to help you with those decisions.

The wide availability of data and sophisticated analytical tools opens up opportunities for insurers to visualise risk in new ways and create a deeper, more holistic view of risk across their entire book of business.

Designed to support underwriting decisions at the point of sale as well as help with accumulation and exposure management, Business Insight’s Location Matters© provides interactive maps displaying property location, risk, perils, policies and claims. Users can customise their view in and around a location to consider all possible risk influences, for a 360-degree view of risk.

Enabling insurers to get a granular view of a location’s particular risk, as well as the properties, hazards and geographic make-up of a specific area, allows underwriters to be more strategic when it comes to risk selection and pricing risk.  Underwriters can map their book of business at an individual address level and assess accumulations of risk by locality.  It can also be used within claims departments to assess the validity of claims.

Users are able to upload their own data and combine it with third-party information for a deeper understanding of the significance of factors that might impact their business going forward and to select more profitable risks more effectively.

Contact the sales team for more information on 01926 421408.

Climate change and windstorms

The world’s climate is changing and the frequency of storms is impacted by variability in the climate. In 2017, the ABI together with catastrophe modeller AIR Worldwide and the Met Office collaborated on research into UK windstorms.  The research considered what effect global temperature increases of 1.5, 3 and 4.5°C would have on the frequency and intensity of UK windstorms.

The research highlighted that temperature increases of just a small number of degrees could lead to a large increase in insurance losses.   These increased losses would not be spread evenly across the country but would more likely to be concentrated in Northern Ireland, northern England and the Midlands, with southern England potentially seeing decreasing losses from storms.

This is based on Met Office analysis which shows that even small increases in temperature are likely to shift stronger winds further north. The full report can be found here.

Matt Cullen, Head of Strategy at the ABI, said: “Concerns about global warming often focus on rising water levels and the threat of flooding but this new research makes it clear the impact of other meteorological events such as high winds must not be overlooked.”

Extreme weather events are difficult to predict in advance. However, it is possible through analysis of vast volumes of historical data to understand and highlight the areas that are more at risk. Investing in technology and data models that are based on accurate, up-to-date information and that take account of changing risk patterns to gain a deeper insight into risk is crucial for insurers to ensure they are not selected against or over exposed in high risk areas.

Business Insight has Storm models for both residential and commercial properties.  Based on extensive research and the largest source of storm claims information available in the UK, the Storm Insight© models consider the variation in peak wind gusting across the UK together with factors such as topography, urban density, the local built environment and the likely state of repair of buildings to predict annualised loss estimates right down to individual property level. The models have been calibrated using over 72 million windspeed recordings focussed on areas where the UK’s insured population lives and use information supplied by a market leading supplier of weather information to the UK insurance industry.

To find out more, please contact your Account Manager or contact us on 01926 421408.

Drones and their use in property insurance

Unmanned Aerial Vehicles (UAV’s) or drones as they are more commonly referred to, continue to make headlines in the UK for the wrong reasons such as being used to fly contraband into prisons or narrowly missing commercial aircraft!

The Government has recently published its consultation on the safe usage of drones.  The proposed legislation, which is due to be finalised later in the year, is set to place new responsibilities on owners of drones weighing 250g or more.  The new rules will attempt to tighten up safety around airports and will include mandatory registration by the user and the requirement to sit safety awareness tests to ensure they understand UK safety, security and privacy regulations.   A proper regulatory framework for the safe use of drones brings with it opportunities for the insurance industry.  In the US, insurance is already the fourth largest market for drones and drones are set to play an increasing role in the insurance cycle in the UK.

Drones can offer a number of advantages and opportunities for property insurers including surveying risky, hard to reach areas and their ability to produce high quality imagery quickly and economically.

Areas where property insurers can exploit the use of drones include:

  1. Claims inspections

One of the most common uses for drones by insurers in the US is conducting roof inspections. Roofs are notoriously difficult and hazardous to inspect and can be dangerous, particularly if a roof has suffered damage following a fire or a storm.  Drones remove the need for a loss adjuster to go out on site and they are able to capture high-resolution images of the entire area, including parts of the structure that wouldn’t necessarily be accessible to a human.

Drones can also be used to speed up the claims process.  A drone can survey a property quickly and accurately. The footage can then be reviewed, the damage assessed, and the claim processed, thereby reducing claims settlement time and improving customer experience.

  1. Post-Event surveying

Drones could be used to inspect areas following a major event like a flood or storm.   They are already being used in America in relation to wildfires where the photos of the damage are taken and then cross-referenced with risk modelling and underwriting information.

Drones can access areas that might be dangerous for loss adjusters to enter and could be employed quicker than mobilising a team of loss adjusters.

  1. Fraud Monitoring

Drones could also be used to deter insurance fraud.  For instance, an insurer could send a drone to take photos of an accident scene. It could then use the data collected to verify details submitted by the insured in a claim.

There is no doubt there is plenty of scope for the use of drones within property insurance.   However, a regulatory framework needs to be in place first so that concerns in relation to safety and privacy can be addressed.

Verisk Analytics Acquires Business Insight

Verisk Analytics, a provider of property/casualty (P&C) insurance risk information, has acquired UK-based insurtech Business Insight.

Warwick-based Business Insight is a technology company focused on developing predictive analytical models for insurers in the UK and Ireland. The company provides risk models to support underwriting, risk selection, and rating for the commercial property, homeowners, and private and commercial motor insurance markets. Its analytic solutions help insurers benchmark market pricing, gain a deeper insight into risk, and identify geographies to support profitable growth.

Anil Vasagiri, Senior Vice President and General Manager for global property at Verisk, said: “For more than 40 years, Verisk has provided property/casualty insurers in the United States with robust data and analytics to manage risk. Business Insight’s focus on technology-based solutions for insurers, coupled with its highly sophisticated analytics, will complement Verisk’s industry-leading solutions; and its talented group of data and insurance professionals will strengthen our deep and expanding international team.”

Mark Harrison, Managing Director of Business Insight, commented: “Verisk’s vast data resources and analytical solutions for insurers present a tremendous opportunity for us. We look forward to working with our new colleagues to create more value for our existing clients as well as developing new analytics solutions for insurers around the world.”

Stormy times ahead for Insurers

December to February is typically the time of year when the most windstorms occur across the UK. At the beginning of December, Storm Caroline hit the UK causing high winds which mainly affected Western Scotland and Northern Ireland and leading to power cuts to 49,000 homes.  Storm Dylan brought with it strong winds and snow, leading to travel chaos.

Storm Eleanor battered parts of  the UK and Northern Europe at the beginning of January. The Met Office recorded gusts of up to 100 mph in Great Dunn Fell in Cumbria and huge waves of up to 26 feet were recorded in Devon and in Cornwall, a harbour wall was completely destroyed.

The ABI, AIR Worldwide and the Met Office have done some research into the impact of climate change on windstorm events.  The report found that even a small rise in temperatures due to climate change is projected to lead to more insurance losses as a result of high winds.

The analysis indicated that the increased losses are not spread evenly across the country but are likely to be concentrated in Northern Ireland, northern England and the Midlands.   The full report can be found here.

An increase in the frequency and severity of storm events will inevitably place a greater burden on the insurance industry.  Matt Cullen, the ABI’s Head of Strategy commented: “The likelihood of claims resulting from severe storms increasing in the future is something the insurance industry, and society, need to start preparing for now. Planners and builders should be aware of the need for more wind-resistant construction in specific areas of the country if claims are to be kept to a minimum and residents spared the distress and expense of higher levels of wind damage.”

Having a greater understanding of storm risk for a particular location allows insurers to mitigate this risk in their pricing and improve profitability.  Business Insight has built storm models for both residential and commercial properties in the UK which provide a new level of insight into the distribution of storm risk.

The probabilistic models predict which addresses are most likely to experience claims through damaging winds from future storm events.  Based on state-of-the-art mathematical modelling and extensive computing power and combined with over 80 million historic windspeeds recorded in urban areas from across the UK. The analysis of property vulnerability is also taken account of across 26 million homes and 1.7 million postcode locations.

Considering the variation in peak wind gusting across the UK together with factors such as topography, urban density, the local built environment and the likely state of repair of buildings the model can be used to predict annualised loss estimates right down to individual property level.

Benefits for insurers include an unrivalled level of granularity for a deeper understanding of exposure to storm claims in the UK across a book of business and the ability to easily discover areas where rates need modifying to improve storm loss ratios.  It can be supplied in a number of formats and is easily integrated with existing systems.

Contact us for more information on 01926 421408.

Product Focus – Theft model rebuild

resonateABI figures show that theft from households accounts for 13% of all claims received. Although the volume of theft claims has been falling in the last decade, it is still significant and amounted to over £440 million in the UK over the last year on property related claims. Having an accurate perils rating model that can differentiate risk at a highly granular level can make a considerable difference to improving loss ratios and boosting profitability.

The Business Insight residential theft model ‘Theft Insight’ predicts the relative risk and variation of domestic burglary across the UK and is currently used across the industry by sixteen major property insurers.

Business Insight also has a commercial property theft risk model specifically for commercial property insurers.  Both models are based on extensive research into crime patterns using the latest available data and take account of the changing economic landscape of the UK. This covers a cross-section of inner cities, large towns and suburban neighbourhoods through to small towns and more rural areas.  Built from high resolution spatial and demographic data and calibrated using sophisticated mathematical techniques, the models produce estimates of risk on a street by street level across the UK.

At Business Insight, we know our products need to add value to insurance company pricing and they also need to beat insurers own in-house actuarial models for an insurance company to licence our products as external data feeds.  Consequently, we invest significantly in R&D to ensure that our products help insurers maintain a competitive advantage.

Some vendors build a peril risk model which is a static product with little or no further refinement. Once built, the predictive accuracy of a perils risk model degrades over time so the continuity of development and focus on improvement and refinement is very important.

We are currently working on rebuilding our theft models using AI techniques, refreshed data and experimenting with a new level of geography that ensures the anonymity of people residing in those locations but that is also more powerful than current postcode versions. This will provide a deeper insight into crime and theft patterns across the UK and a higher level of predictive capability.

Contact the sales team for more information on 01926 421408.

GDPR – are you ready?

Previously, we looked at the impact of the GDPR on the insurance industry in terms of consent, automatic profiling and exemptions.  In this article, we look at whether postcodes constitute ‘personal data’ and sharing data with third parties.

The GDPR defines personal data as ‘any information relating to an identifiable person’ and that includes names and location data.

The Ordnance Survey definition of a postcode unit is “an area covered by a particular postcode”.  Postcode units are unique references and identify an average of 18 addresses.  Currently, the maximum number of addresses in a postcode is 100. There are over 77,000 postcodes with only one residential address and around 336,000 postcodes with less than five residential addresses. This might be perceived to be a problem if the data attached to that postcode can be deemed to be ‘personal’ and could be used to identify a particular individual.

There has so far been no guidance issued relating to the number of properties within a postcode deemed to be the level sufficient to safeguard the anonymity of individuals residing there when using any statistics or data relating to that postcode.  Some statisticians often refer to a number as high as 30, though this number relates to something called ‘the Central Limit Theorem’ and is more to do with producing robust, reliable statistics and estimates of the mean rather than relating to privacy.

Time limits and erasure
The use of personal data should be limited to the “specific purpose” for which the processing is intended. This change is likely to impact the insurance industry which up to now has sought to hold on to personal data for as long as possible to maximise its potential use.  Clearly, there are business reasons for keeping hold of customer data but Article 17 states that data subjects are entitled to have their personal data erased or forgotten if there is no longer a legal requirement to retain the data.  It also states that the data subject has the right to request that personal data is erased without “undue delay” when the personal data is no longer necessary in relation to the purposes for which they were collected.

Sharing personal data with third parties
Insurers share data with industry bodies and platforms such as the Claims and Underwriting Exchange [CUE], the Insurance Fraud Bureau [IFB] and the Insurance Fraud Register [IFR] for the purposes of preventing fraud. The Regulation states that insurers will have to rigorously record and evidence how and why they are using and sharing data.

The ABI has been lobbying the government to pass legislation so that insurers can continue to use fraud indicator data and criminal conviction data.

With GDPR taking effect in less than 6 months, you will need to start thinking about the implications sooner rather than later to ensure you have everything in place to meet the May 2018 deadline.

The future of insurance – a brave new world

resonateTechnology is already shaping the future of insurance from autonomous vehicles and advanced driver assistance systems (ADAS), to inter-connected homes, artificial intelligence (AI) and machine learning.

One of the biggest challenges the insurance industry faces is adapting to this brave new world and maximising the opportunities that the new technology creates. Established insurers face a huge threat from agile start-ups able to better harness the new technologies. Some of the new ‘tech’ may or may not live up to the billing and some will be certain to drive rapid change. Data and analytics, what we collect and how we extract value from the data, is one area already in motion.

The big data challenge
Big data technologies and analytics are making it easier for organisations to capture large datasets but many still struggle to generate meaningful insights from the vast amount of data.  The challenge is to convert the data into meaningful information and then connect it with and across datasets in a way that enables enrichment and deep insight.

Deep risk insights
In terms of risk management, where insurers are seeing the real value is using data and analytics to gain a deeper insight which allows for better, more profitable decision making. Using artificial intelligence and machine learning, patterns and trends can be identified that would otherwise have stayed hidden.  Technologies around data have emerged to handle the exponentially growing volumes, improve velocity to support real-time analytics, and integrate a greater variety of internal and external data. Twenty years ago, many insurers couldn’t even rate a risk by postcode, particularly those distributing through brokers, due to legacy systems and IT restrictions. Now, pricing can be based on data relating to the specific individual in real time. Personalised pricing has allowed insurers to be more targeted in the selection of customers, to proactively cross and up-sell and to target opportunities in new segments or markets with confidence.

Why the hype surrounding AI?
Machine learning techniques such as neural networks have been around for a long time and were in use in the industry during the 1990’s for predictive analytics, so what’s changed?  There are three main factors; firstly, computing power has significantly improved.  According to Moore’s law, computing power effectively doubles every couple of years.  This means that algorithms are now able to crunch much more data within timescales that were previously out of reach.  Secondly, the volume, availability, and granularity of data has also radically improved.   Thirdly, the efficiency and capability of the algorithms embedded deep within neural networks have also markedly improved. These three factors combined have resulted in these types of techniques coming more into focus recently for applications within insurance.

Insurers have been using AI technologies to improve their efficiency and speed up internal operations in terms of automating processes for claims and underwriting.  AI and neural networks can also be employed to help gain a deeper insight and to differentiate risk in a much more granular way.

Business Insight has developed its own AI platform called ‘Perspective’. It is a neural network that can take large volumes of records across many variables as data feeds before iteratively learning from the data, uncovering hidden patterns and forming an optimal solution. The software can take a vast number of input data points and hundreds of corresponding risk factors per case before constructing a more accurate estimate of risk and offering significant improvements in predictive accuracy compared to statistical data models.

Changing customer needs
Behavioural analytics and advanced data analysis can also help insurance companies gain a deeper understanding of their customer base for the development of personalised products and solutions.

Millennials, having grown up with smartphones and being used to digital interactions, want the ability to compare products quickly and easily and find value for money at the click of a button. They want the product best suited to them and their lifestyle and these are the things they are looking for from an insurer.  This is where data and technology will need to be harnessed effectively by insurers to create products for the next generation of customers. It is this need to adapt and evolve to match customer requirements and buying preferences that has led Aviva to recently launch their ‘Ask it Never’ initiative.  Aimed at Millennials, the idea is to eliminate the need for applicants to have to spend time answering lengthy questionnaires by pre-populating the fields using big data to streamline the application process, saving the customer time and making the service more efficient.

Agility and change need to be embraced by traditional insurers otherwise some may end up going the same way as Kodak, a market leading company that resisted change and saw its market share fall off a cliff when digital photography came along.

Product Focus – DNA Dimensions – Uncovering the DNA of every street

DNA Dimensions is the latest in our suite of Risk Insight© products.  It has been designed to provide insurers with a Detailed Neighbourhood Analysis (DNA) across a range of demographic themes. This delivers a deep insight at a level of granularity to improve pricing models and risk selection capability.

DNA Dimensions is a set of orthogonal or uncorrelated risk scores explaining the variation across the vast range of demographic data sources held by Business Insight, including the latest Census information, geodemographic, environmental data and spatial data. DNA Dimensions provides a unique set of scores across a range of themes for every postcode in the UK. Candidly, this can be fed directly into insurer pricing models to explain more variation in the pattern of risk and improve the accuracy of risk pricing.

DNA Dimensions utilises a statistical analysis technique called ‘principal component analysis’ and has been applied to the full range of demographic data assets within Business Insight to uncover the underlying dimensions present down every street.  The range of themes output in the solution are essential to understanding risk such as wealth, affluence, family composition, rurality and industry. These explanatory risk themes also give a detailed insight as well as increasing the understanding of each geographic location.  Every neighbourhood of the UK has been analysed and has been given a different set of scores that uniquely describes each location across the range of factors in the DNA Dimensions product, this helps to understand:

  • The make-up of the local area
  • Affluence
  • Property turnover
  • Levels of urbanisation/ rurality
  • Housing type
  • Life stage
  • Occupation
  • Employment

The scores can be easily included in risk pricing and rating models to increase accuracy and to fill gaps where insurers have little or no experience data.  Our initial tests against experience data have shown DNA Dimensions to add considerable value to risk pricing models, indicate potential to help drive better risk selection and enhance underwriting performance.

Business Insight is focused on providing the insurance industry with innovative products that add value and drive business growth. Business Insight invests a significant amount in Research and Development every year and our expertise in statistics, big data processing as well as knowledge of insurance has ensured DNA Dimensions is relevant, precise and effective as an external data feed.

If you would like to find out more please get in touch via your Account Manager or contact our support team on 01926 421408.

 

The Great Storm of 1987 – 30 years on

After the devastating effects of Storms Harvey, Irma and Maria on the US and Caribbean Islands, we revisit the great storm of October 1987.  Experts are already saying that Storms Harvey, Irma and Maria could end up being three of the costliest storms in modern times. AIR Worldwide has put potential insured losses for the three storms in total at an astonishing $155bn. We are lucky in the UK that we don’t get storms of this type hitting our shores. Indeed, major storms causing losses in excess of £1bn are rare events in the UK. On the 16th October 2017, it will be thirty years on from the Great Storm of 1987.

Referred to in the industry as ‘87-J’, the storm took everyone by surprise and at the time, was classed as the UK’s worst storm since 1703. It still remains one of the most severe and costliest windstorms the UK has ever experienced. One in six households made a claim at the time and losses to the industry for commercial and residential cover exceeded £1.3bn.

Striking in the middle of the night, the 1 in 200-year storm left behind a trail of damage and devastation in the South East of England and Northern France with 18 people losing their lives and extensive damage to property and infrastructure. Many houses were without power for several days and fallen trees blocked roads and caused travel chaos. An estimated 15 million trees were uprooted and Seven Oaks famously became One Oak.

The worst affected areas were parts of Greater London, the Home Counties and the East of England. The South East of England experienced unusually strong wind gusts in excess of 81 mph lasting for 3 to 4 hours and gusts of up to 122 mph were recorded at Gorleston, Norfolk.

The exact path and severity of the storm were very difficult to predict using the forecasting methods and data available at the time.  The Met Office’s Michael Fish faced a backlash for dismissing a viewer who had asked about whether the UK could expect a hurricane but at the time it was hard to forecast the precise path the storm would take. The path of the storm and the direction of the wind were very unusual; running from south to north, with the storm striking the more densely populated areas of the South of England.  The South of England has higher concentrations of sums insured and this resulted in a large loss for the Insurance Industry. Subsequently, changes were made to the way forecasts are produced and the National Severe Weather Warning Service was created.

A better insight into windstorm risk

Data modelling and analytical tools to help underwrite and price property risks accurately for natural perils have come a long way since 1987 when data on individual properties was scarce and geographic risk assessed by postal district. Insurers are now much better equipped to gain an in-depth understanding of risk exposure with access to risk models that are based on up-to-date, accurate information and that take account of changing risk patterns.

Business Insight’s ‘Storm Insight’ risk rating model. is based on extensive research, huge volumes of explanatory input data and cutting-edge analytical techniques. Storm Insight utilises the largest source of storm claims information available in the UK, detailed property vulnerability data for every street and over 100 million historic windspeed data points recorded in urban areas across the UK.  We also have access to an archive of actual storm event footprints over the last 150 years to gain insight into rare events such as the 87-J Storm.

What would the industry loss be if 87-J were to happen again?

In 1987 the losses from the great storm on 17th October resulted in over £1 billion in insured losses to domestic property as well as significant damage to commercial property. Things have moved on since then, in terms of housing development, levels of affluence and insured values at risk. Over the last 30 years, there have been significant increases in housing development across the South of England in areas that were in the path of the storm in 1987.

Official figures from ONS show the number of residential properties in England increased by 28% between 1987 and 2017. In London (Outer and Inner) the increase has been 32%. Coupled with that inflation has more than doubled over the last thirty years and, perhaps more significantly, the wealth across the South East of England and London has increased enormously. Many more properties across the housing stock have been extended in 2017 compared with 1987 and the total insured values at risk is of an order of magnitude higher. The level of wealth is also far higher with one in ten households now reported as having assets worth more a £1 million.

If the UK were to encounter the same storm again in October 2017, the loss to the UK Insurance Industry would not be in the same league as recently reported losses in the USA and Caribbean though it would still break all previous UK records. In our view, it is likely that losses to the UK insurance industry for such an event would exceed £6bn.