Capitalizing on Claims Data

 

After initially focusing on underwriting and pricing, many insurance companies have expanded their view of data analytics to loss management. The claims handling process represents a rich area for data modeling tools that can provide better insight into everything from adjuster assignment and operational efficiency to fraud detection and subrogation. How does data analytics fit into the claims management process for insurers - and adjusters?

By: Craig Harris, Freelance Writer

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If "data is the new oil," as some contend, then analytics represents the internal combustion engine of business intelligence. Insurance companies are using various types of data analysis and predictive modeling techniques in areas such as underwriting, pricing and, increasingly, claims management.
Deloitte Canada recently surveyed Canadian insurance companies across underwriting, risk management and claims departments to ask how important data analytics was to their operations.
"Thirty per cent said it was important and 70 per cent said it was absolutely critical," comments Keith Walter, senior advisor, insurance consulting practice, Deloitte Canada. "The top 20 property and casualty (p&c) insurance companies in Canada are either in development or in testing phase with data analytic models and concentrating on certain areas. Number one is loss cost management, through fraud and subrogation; and number two is operational efficiency, or how to manage resources against claims in an efficient way."
The jockeying for position in data analytics has led to an arms race for insurers seeking to harness the power of structured and unstructured (or big) data for business insights into the claims handling process.
"If we measure the data, we have an opportunity to manage the data," says Patti Kernaghan, president of Kernaghan Adjusters Ltd. "If we spend the time creatively accessing the data, and the possible decision making opportunities coming out of the data collected at the claims front line, we'll be better equipped to see patterns that are otherwise hard to pinpoint."
Scientific Evidence
Kernaghan adds that "in the past decisions were often made on gut instinct. Data analytics provides the scientific evidence that will help us make better decisions for claims management and ultimately better underwriting and better insurance products that suit the needs of the insuring public."
A 2014 Towers Watson survey of U.S. and Canadian insurers found that company priorities in data analytics primarily involved underwriting/risk selection (57 per cent use or plan to use), but claims functions figured predominantly in the list. Specifically, loss control (49 per cent), claims triage (37 per cent) and evaluation of fraud potential (36 per cent) emerged as key areas of focus for insurers - particularly as "plan to use" in the near future.
To get there, insurers will have to make sense of the dizzying array of information available in today's digital society: the so-called three "Vs" of big data - volume, velocity and variety. According to an IBM white paper, each day more than 2.5 quintillion bytes of data are created. Velocity often refers to "real-time" or streaming data and the need to incorporate that information into business processes and decision-making. And then there is the variety of data: structured, semi-structured and unstructured information. This could involve text, sensor data, audio, video, radio-frequency identification (RFID), click streams, log files, twitter, Facebook posts - essentially, any type of measurable data.
"I see more emphasis on leveraging outside data sources and unstructured data sources to increase efficiencies and cost containment in the claims management process, and provide more robust and inclusive risk management analytics," notes Patrick Bossey, manager business intelligence unit, Crawford & Company (Canada) Inc.
Unstructured Data
"We have already seen this trend starting to take off with respect to the infrastructure for some of the fraud detection solutions out in the market, and this will only continue as the underlying technologies and abilities to manage and mine big data mature," he adds.
In a recently released Canadian study, Property and Casualty Insurance Reimagined: 2025, Deloitte notes that insurers will face a learning curve on "how to collect, store and take action on structured - and especially unstructured - data. While much of the data insurers will need will be highly organized, consistent and structured, far more data will be 'unstructured' - an anarchic collection of social posts, tweets, claims photos and more. Carriers will need to determine how they'll monitor and make sense of it all."
Indeed, a recent research report spearheaded by the UK Chartered Institute of Loss Adjusters, in conjunction with Ordnance Survey, found that 82 per cent of those questioned believed that insurers that do not capture the potential of big data will become uncompetitive. Another recent study from IBM found that 74 per cent of insurance companies surveyed report that the use of information (including big data) and analytics is creating a competitive advantage for their organizations.
Those insurers with the capability to turn raw data into useful information and then business-driven insights will gain strong footholds in various facets of the claims lifecycle - from FNOL to resolution.
More insurance companies are using, or contemplating, data analytics and predictive modeling to better identify claim patterns. Insurers have invested in software and tools such as link analysis, text mining, social media analytics, location intelligence and network visualization Predictive analytics, which involves the use of regression models and advanced techniques such as neural networks, helps to quickly and more accurately determine the complexity of the claim and whether it needs further investigation.
These techniques can apply to various types of data or information. A good example is the use of text mining to search for specific words or "tags" in adjusters' notes.
"Text mining can help carriers identify, understand, and measure the root causes behind losses to enable smarter underwriting. 'Water damage' is a great example, because often a claim possesses that descriptor and has no further detail in a claims system," states Karthik Balakrishnan, an analytics specialist formerly with Verisk/ISO. "Using appropriate text mining on claim adjuster notes can reveal whether the claim was the result of a 'burst pipe' or a 'weather-related event.' Applying that granular insight to identify and quantify trends can lead to development of smarter underwriting criteria and establishment of stronger loss control and prevention mechanisms."
Driving Insight
So, how is data analytics driving insight into key parts of the claims management process? There are several areas cited by sources. One is the identification of loss patterns and the opportunity for reductions in claims. Bossey explains that Crawford & Company (Canada) uses geocoding, time lapsing and benchmarking to analyze loss data and identify trends for its clients.
"We work with our clients to establish and monitor action plans, minimize loss exposures, and provide them with the 'full picture' of their loss activities," Bossey notes. "For example, in one such case we identified specific neighbourhoods in major cities, which, over multiple years, had concentrations of break and enter claims. This information was synthesized into clear and concise formats, and was shared with key stakeholders to prompt appropriate action."
Kernaghan agrees that data analytics can drive major changes in risk exposures and opportunities. "A primary way of using data analytics is for cost saving purposes," she states. "The claim results help inform the underwriters when coverages need to be reviewed, deductibles increased or even new products developed such as flood insurance, that is just now being offered in Canada by two companies."
It is not just insurance companies that want this information - but risk managers as well. "Our risk management clients tend to use high-level analytics - they are looking for trends and benchmarks," Bossey says. "They want to know how to reduce claims, but also want to gauge themselves against prior years and similar types of risks. Mostly commonly, they are looking for cost trending and comparisons, financial ratios, litigation ratios and the frequencies of certain types of losses. "
Kernaghan notes that "front-line claims data collection is particularly important to risk managers, especially in large corporations that have long understood and applied data analytics to their specific operations. Today with the increased availability of tracking data inexpensively, scientific evidenced based decisions are becoming even more available and important to risk managers when making business decisions," she says.
Fraud detection is another critical area for data analytics and claims, particularly for insurance companies exposed to various forms of organized, premeditated and opportunistic fraud. Insurers are using various methods, including link analysis, location intelligence/analytics and network visualization, to more quickly identify suspicious claims.
Fraud Detection
"A key question is how claims organizations are better equipping themselves to identify both hard and soft fraud," says Alex Watson a manager in the insurance consulting practice for Deloitte Canada. "And then how do they use that information to better allocate investigation resources, whether that is through a dedicated fraud investigation team that is going out into the field or using social media tools."
Data analytics can represent a better technique to catch fraudsters than traditional fraud detection measures, such as red-flag indicators, random file reviews or automated business rules.
"Most fraud solutions on the market today are rules-based," notes Stuart Rose, a global marketing principal at SAS in a report, Six Ways Big Data Analytic Can Improve Insurance Claims Processing. "Unfortunately, it is too easy for fraudsters to manipulate and get around the rules. Predictive analysis, on the other hand, uses a combination of rules, modeling, text mining, database searches and exception reporting to identify fraud sooner and more effectively at each stage of the claims cycle."
Bossey observes that there are interesting developments with data in identifying opportunistic fraud and claims leakage. "An exciting area of opportunity is applying analytics to contain leakage," he says. "Similar to building a fraud detection solution that identifies red flags, if we can develop algorithms to flag potential leakage and refine these algorithms with audits and real-life use, we can work towards building more robust models."
Subrogation represents a prime area for increased efficiencies in data analytics, according to sources.
"Many insurers are asking: 'how do we pinpoint subrogation opportunities earlier in the claims lifecycle? What are the key triggers in data analytics or the adjuster's ability to identify subrogation potential?'" Watson notes. "This can then be passed to a more specialized unit who can investigate and recover money sooner rather than later. There are a lot of subrogation dollars left on the table, either because they are recognized too late in the claims lifecycle or not recognized at all."
One of the key drivers for data analytics in the claims management process is enhanced operational efficiency - or making the claim hand-off process as smooth and quick as possible. There's room for improvement, for example, in the adjuster assignment process, according to sources.
Operational Efficiency
"Adjuster assignment segmentation is a heavily manualized process that is probably documented on some sort of Excel spreadsheet by a claims supervisor," Watson observes. "For insurers, however, once they are able to capture the right amount of personal and loss information, they are better able to segment those claims to the right people. The real opportunity for data is really its use as a workforce management tool - to get more sophisticated in assignment and segmentation."
The allocation of resource capacity in large catastrophic events is another important claims consideration for insurers and adjusters, according to Watson.
"We have seen a lot of insurers still struggling with how they prepare for CAT events, even though we are getting to the point of anticipating and even knowing the risks beforehand within a generally defined range," he says.
"For example, with hurricane season, we know that in the south Atlantic, the season is between July and December, but the peak months tend to be October-November. So how do insurers use data analytics to build up capacity in the affected areas? Or how do they alleviate capacity restraints in those areas? Can they offload some of the claims onto areas that may have less capacity?" Watson notes.
For independent adjusters themselves, many of the features of data analytics have revolved around key performance indicators (KPIs) set out by insurance companies.
"One of the primary ways data analytics are used today is . . . tracking various KPIs to include a series of firsts: 1) Contact with the insured; 2) Claim site visit; 3) Report to the principal; 4) Reserves; and 5) Cycle time," Kernaghan comments. "These basic data elements provide an overview of the performance on an individual claim and once rolled up to the entire portfolio level, they can provide management with tools to assess the adjuster's performance and the progress of the entire claims portfolio."
Bossey notes that most of these performance measurements are aligned with cost containment. "In terms of cost containment, our focus has been on measuring key performance indicators and targets set forth by our clients and by Crawford standards, and establishing secondary metrics to proactively strive towards set KPIs and targets," he says.
"One way we monitor costs is by monitoring claim shelf life. We have worked in conjunction with our claims team to understand key milestones during the life of a file and have established measures to track our progress against the established KPIs and targets. This allows for the early identification of files that require additional attention and allows us to direct our resources accordingly to shorten the life cycle of the claim," Bossey adds.
However, an overly narrow focus on metrics and performance targets may take away from the real value of data analytics, according to some sources.
Performance Targets
"Adjusters are using analytics at a claims level; however, there is a lot of untapped potential," Bossey notes. "I feel the main reason for this is that in a world of KPIs, target and benchmarks, most of the claims level analytics thus far have been tailored to the examiner, vendor manager and/or risk manager audience, and are usually performance management based. This means we have been primarily using analytics to track and measure the claims process, rather than augment and support it."
To truly reap the rewards of data analytics, Bossey says "the next steps are to work closely with adjusters and operations to intimately understand processes and workflows, with the ultimate goal of automating more functions, and tailoring information to support their specific needs and facilitate their workflow."
The technology investment in data analytics has to be accompanied by an equal emphasis on people and process in claims management functions, according to Watson. "It is critical for the claims organization to get the people and process part right," he says. "Traditionally, insurance companies' systems haven't allowed them to capture the richness of data that they require in a structured format. So we are seeing the need for insurers to implement the right processes, and measure the right KPIs to incent the appropriate behaviours."
Watson adds "that is a move away from, 'let's just capture the entire claim in an unstructured notes section.' Instead, it's 'let's better use the technology we have and capture all of the information we are going to require.' Insurers know this will eventually drive lower loss adjustment expenses, allow them to predict losses or be better able to assign and select claims to the right adjuster the first time. And ultimately, it will provide better customer service."
There are many challenges to the full adoption of data analytics and several reasons why some insurers have yet to pursue "end-to-end implementations," according to Deloitte's Walter.
"The two biggest challenges in data analytics are people and costs," says Walter. "There is a relatively small pool of people who are knowledgeable and capable of dealing with advanced data analytics. The second issue is the total cost of what we would call end-to-end implementation. It is one thing to build a model in a lab somewhere; it is another thing to actually implement it into a live system so it is delivering value when needed."
For adjusters, one of the main obstacles to data analytics is the quality of the data itself. "The main challenges we see are inconsistent or incomplete data," says Bossey. "Insurance Bureau of Canada (IBC) has provided excellent guidance and frameworks for statistical models and coding. For the analytics side of the industry on the whole, there is great opportunity to establish consistency in terminology and measurements - particularly for common terms, such as shelf-life and claim."
Quality of Data
Bossey adds that "data sharing is problematic because each organization structures their data to match their unique operational needs, and calculates measures based on their own evidence of activities. If we can get to a place where some of the key terminology and pieces of data can be locked down across the board, the whole industry could benefit."
Kernaghan says that one of the most obvious obstacles to data analytics is data integrity. "Can you rely on the source? Is it timely? Is it accurate? Have your naming conventions been clearly articulated and agreed upon?" she asks. "If you are confident in all areas, your evidence based results will help provide a sound analysis for making business decisions."
While cumbersome, these challenges will not likely stop the progress of data analytics in the p&c insurance marketplace, according to sources.
For claims, Bossey believes the future will see "an ongoing validation and refinement of fraud detection models. In addition, there will be a continued focus on identifying further efficiencies in the claims handling process through predictive modeling, and a move to using analytics to reinvent the claimant experience after a loss."
Kernaghan observes that "we are operating in a world of evidence based information. The issue is effectively reading the data collected to ensure we make the right decisions. The future of data analytics in the p&c industry for claims and risk managers is a stronger and stronger reliance on the increasingly cheaper ways to gather scientific evidence based data," she adds.
"We are very quickly getting to the point where it is not a shortage of data, but rather whether insurance companies can take full advantage of the data they have," Watson concludes. "It is a race to turn that data into real value, and unlock the value that is already there."

READ ORIGINAL POST HERE:
 http://www.claimscanada.ca/issues/article.aspx?aid=1003714026

Thank you for reading this post

Stay safe,
Darren Miller
Project Manager at Winmar Fraser Valley
http://winmar.ca/fraservalley

Social media evidence and ethical discovery: Looking behind the curtain

The bottom line on social media investigations
Social media usage increases by the day. People are constantly finding new ways to share nearly every aspect of their lives online. For those professionals who are responsible for handling or defending claims, it is imperative to devise a social media investigation strategy to obtain evidence that just may "make or break" a claim in your favor. What is your strategy?

 

According to recent estimates, people send 31.25 million messages on Facebook; send 347,222 tweets on Twitter; view 17,361 profiles on LinkedIn; post 48,611 pictures on Instagram; upload 300 hours of video on YouTube; and upload 1,041,666 video loops on Vine every minute. Given that there are 1,440 minutes in a day, the amount of content shared in the social media universe is astonishing. If investigating a claimant's social media sites is not a routine part of your claims or litigation defense strategy, you are overlooking scores of potentially valuable evidence.
The best social media evidence is discovered early
There are countless ways in which a claimant's social media profiles, activities or updates can be disastrous to his or her claim. Claimants’ counsel are keenly aware of the real danger social media poses to potential claims. It is now common practice for counsel to instruct claimants to limit social media use, increase privacy settings to the highest levels, decline any new “friend” requests, or simply delete the entire social media existence.
Related: Why protecting claims evidence matters
Faced with the possibility of an inactive, non-public, or deleted social media profile, the best time for claims professionals to gather beneficial evidence is as early as possible after becoming aware of a claim. This early investigation strategy increases the likelihood of capturing information showing a claimant at baseline levels, depicting the existence or severity of preexisting conditions or property damage, or sharing immediate post-incident activities that may belie future allegations. It is a good practice to continue monitoring a claimant's information over time to track how any favorable evidence changes throughout the claims process and litigation.
Also, be sure to review the social media profiles of a claimant's spouse, children, friends, roommates, or other fact witnesses. Any one of these individuals may have and share incident-related or claimant-specific evidence that aids in the investigation.

(Photo: Twin Design /Shutterstock.com)
Look, but don't touch: Ethical guidelines for investigating social media

The current consensus among courts is that there is no privacy interest in information uploaded to social media, regardless of the user's privacy settings. In Tompkins v. Detroit Metro. Airport, a Michigan federal judge explained that "material posted on a 'private' Facebook page, that is accessible to a selected group of recipients but not available for viewing by the general public, is generally not privileged, nor is it protected by common law or civil law notions of privacy." The principle underlying a claimant's lack of privacy over social media is that the information distributed was intended to be shared with someone. Related: Hidden dangers: 5 steps to keep your child's identity protected online
Despite the lack of privacy interest, claims professionals must still be mindful of not violating ethical rules. Communicating with claimants through social media portals can be viewed as an illegal or inappropriate contact with an opposing party. Here are some guidelines to consider in developing a social media investigation strategy:
Publicly available information. When asked "whether a lawyer may visit the public website of an opposing party," in a 2005 ethics opinion, the Oregon Bar Association answered that the viewing of a claimant's publicly available social media information was ethical because it did not involve any communication, and analogized such conduct to being no different than “reading a magazine article or purchasing a book written by that adversary.” Put differently, it is not unethical to passively view publicly available social media information. The bar associations and courts that have addressed this issue agree that such conduct does not run afoul of ethical guidelines.
Non-public information. Information that claimants place behind social media privacy settings restricts access to "friends," "subscribers," or "followers" already existing within their same shared social network. While it may be tempting to “friend” or “follow” a claimant, it is not advisable to do so for several reasons. First, doing so has the potential of violating ethical rules of some jurisdictions. In 2011, the San Diego County Bar Association advised that it is unethical to make an ex parte "friend" request to view the non-public portions of a represented party's social media profile. This is because becoming a claimant's "friend" requires making a direct request of (or contact with) the claimant.

Related: Statement analysis: The truth lies in the words
The second reason to not "friend" a claimant concerns the timing of when an unrepresented claimant retains legal counsel. While there are jurisdictions that permit social media contact with an unrepresented claimant (e.g., Kentucky, New York, Oregon, and others), claims professionals are not always aware of when a claimant hires an attorney. Accordingly, what may be ethical behavior one day, may become unethical the next.
The last reason for not "friending" a claimant is the likely low value of the discoverable evidence from a claimant who accepts a claims professional's friend request. In the jurisdictions that allow social media contact with unrepresented parties, the legal professionals are required to disclose their true identity to the claimant (e.g., in Kentucky and New York) and also disclose the true purpose of the friendship request (e.g., in Pennsylvania and New Hampshire). Thus, identifying yourself (as a claims professional or attorney) and asking claimants to accept your friendship request because you would like to view their non-public information for purposes of investigating the veracity of their claim is not likely to provide much, if any, valuable evidence.
Nor is it good practice to hire a third-party to "friend" claimants to retrieve non-public social media information. When presented with this hypothetical scenario in 2009, the Philadelphia Bar Association advised that such a discovery method was inherently deceptive. It opined that such conduct was unethical because, in that situation, the legal professional omitted "a highly material fact, namely, that the third party who asks to be allowed access to the witness's pages is doing so only because he or she is intent on obtaining information and sharing it with a lawyer for use in a lawsuit to impeach the testimony of a witness."

Photo: Ttatty/Shutterstock

Proper preservation of social media evidence
Having found some valuable evidence on the claimant's social media profile(s), the next step is to preserve this information for future use. Such evidence may be secured in a variety of ways ranging from simple to high-tech. The simplest way is to print or save screenshots of the social media content. This method, unfortunately, does not include any of the "metadata" — or unique digital DNA — associated with the social media information.
Related: A quick summary of the legal factors that can impact insurance claims
The high-tech method involves hiring vendors who specialize in retrieving and preserving publicly available social media information and its associated metadata. For instance, such vendors are not only able to determine when a particular photo was posted to a social media account, but they can also identify the specific device from which the photograph was uploaded. This method may be the optimal way to preserve “smoking gun” social media evidence in higher value claims and litigation.
Authenticating and getting social media admitted into evidence at trial
While courts weigh many factors in admitting social media evidence (relevance, hearsay, etc.), authentication is the biggest hurdle to admissibility. Authentication requires proof that the matter in question is what its proponent claims it to be.
The primary concern with social media evidence, as the Maryland Supreme Court said in Griffin v. State, is the relative ease that "anyone can create a fictitious account and masquerade under another person's name or can gain access to another's account by obtaining the user's username and password," combined with the fact that "a person observing the online profile of a user with whom the observer is unacquainted has no idea whether the profile is legitimate." In short, courts want to know if the account owner actually posted, tweeted or uploaded the social media evidence in question.
Given that courts want (and evidentiary rules require) proof that the social media content is genuine, here are some ways to authenticate social media evidence and get it admitted in court:

• Written discovery. Propound Requests for Admission that require claimants to admit or deny that they created or posted the social media at issue.
  
• Deposition testimony. During depositions, claimants can be asked if they created the social media profile and posted the picture or statement in question.
  
• Forensic inspection. Examine the claimant's hard drive or smartphone to determine if that device was used to create the social media profile or created the evidence in question.
  
• Stipulation. Simply ask opposing counsel to stipulate to the authenticity of the social media evidence sought to be introduced at trial — the answer may, surprisingly, be "yes."
  

The bottom line on social media investigations
Social media usage increases by the day. People are constantly finding new ways to share nearly every aspect of their lives online. For those professionals who are responsible for handling or defending claims, it is imperative to devise a social media investigation strategy to obtain evidence that just may "make or break" a claim in your favor. What is your strategy?
Jeremy Rogers, Esq., is a senior attorney with litigation defense firm Smith Freed & Eberhard, P.C. He assists in special investigations, offers coverage advice, and defends carriers and insureds in federal and state court litigation. He can be reached at jrogers@smithfreed.com.

READ ORIGINAL ARTICLE HERE  http://www.propertycasualty360.com/2015/08/20/looking-behind-the-curtain-social-media-evidence-a?t=investigative-forensics&page=2&page_all=1

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Have A safe Day

Darren Miller

8 tech trends that will change how carriers do business

8 tech trends that will change how carriers do business

AUG 18, 2015 | BY MELISSA HILLEBRAND

 Don't fall behind: Carriers’ appetites for more data—for better underwriting and risk selection—and desire to drive down costs are fueling a move toward becoming more customer and tech focused. (Photo/Shutterstock)

Don't fall behind: Carriers’ appetites for more data—for better underwriting and risk selection—and desire to drive down costs are fueling a move toward becoming more customer and tech focused. 

The relationship between insurers and their policyholders is typically infrequent, fleeting and transactional. Because of this, carriers have not needed to be at the leading edge of informational technology, Deloitte says in its “Tech Trends 2015: The fusion of business and IT” report.

In fact, while other businesses have migrated from legacy systems to mobile and cloud solutions, insurers remain some of the largest users of mainframe technology. But this is changing. Carriers’ appetites for more data—for better underwriting and risk selection—and desire to drive down costs are fueling a move toward becoming more customer focused.

Deloitte analyzes these trends, and others, in its sixth “Technology Trends” report, including how each of these trends applies to and can impact insurance companies. Read on for more.

1. CIO as Chief Integration Officer

Increasingly, CIOs need to harness emerging disruptive technologies for the business while balancing future needs with today’s operational realities. The CIO must be the driving force for intersection, IT-heavy initiatives—even as the c-suite expands to include roles such as the chief digital officer, chief data officer and chief innovation officer.

CIOs should build capabilities in three areas, Deloitte says. First, they should put their internal technology in order; second, they should leverage advances in science and emerging technology to drive innovation; and third, they should focus less on technology management and more on strategy.

To accomplish these goals, Deloitte recommends that CIOs create a mechanism for scanning and experimentation, build a culture that encourages failure, and collaborate to solve tough business problems.

 

Photo/Shutterstock) 

2. API Economy: From systems to business services

Application programming interfaces (API), i.e., routines, protocols and tools for building software applications, have been elevated from a development technique to a business model driver.

Public and private APIs provide value to insurers in four ways: through core insurance systems, in developing common insurance services, through government regulatory agencies and via intermediaries.

For example, software vendors can create APIs in their product development teams and share APIs among their client base. “This strategy has proven to be affective, particularly with regard to common insurance functions (e.g. address verification, standard industry transactions, geocoding) that need to be used by every customer,” Deloitte writes in its report. In one such case, policy administration vendor Duck Creek teamed with Pitney Bowes to develop an API to validate address information and enrich address-related data for policy administration quote and issuance, according to the report.

From a regulatory perspective, many states require real-time verification of insurance data. Government entities can leverage APIs to simplify their access to insurance information.

(Shutterstock/horoscope)

3. Ambient Computing: Putting the Internet of Things to work

Along with big data, the Internet of Things (IoT) will greatly impact the insurance industry. Companies now are exploring IoT, but only vaguely understand its potential.

Traditionally, underwriting risk has been a reflection of historical patterns of the behavior, Deloitte says in its report, but with the development and growth of the IoT, insurers now have a more accurate picture of risk exposure.

More consumer data is being tracked today than ever before, through wearable devices, smart thermostats and smart alarms. These technologies make it easier for companies outside of the insurance industry to enter the insurance market and become competitors.

At State Farm and PURE Insurance, policyholders who have smart home technologies—including smart thermostats that prevent water pipes from freezing or monitoring technology that prevents cooking fires from causing significant damage—are receiving discounts on their Homeowners’ insurance. The result? More data for the insurer, and more personalized policies.

This technology extends beyond personal lines. High-tech sensors in agriculture fields provide farmers with data on crop health, soil condition, environmental conditions and pest infestations. Access to this data gives carriers an opportunity to become business partners with their policyholders, Deloitte says, by offering services that better analyze data to help farmers improve productivity.

 

 

(Photo: Shutterstock)

4. Dimensional Marketing

As CMOs and CIOs invest in technology for marketing automation, omnichannel approaches and content development, this will bring new challenges in the areas of customer engagement, data and connectivity.

A single view of the insured is vital for personalized engagement. “The integration of touch points, social media, quotes, history and underwriting data into a customer relationship management platform enables enhanced analysis of the customer journey and helps direct what content, what services and what offers to supply prospective policyholders,” the report states.

Through mobile phone quoting, customers can take a picture of their driver’s license and vehicle identification number prior to quote generation. Add in enrollment via text messaging and online chats, and insurers have compelling portals for agents to easily quote, convert and enroll.

With streamlined capabilities across channels, carriers are becoming partners with agents in selling and servicing the process. “By enabling agents to be more productive, and more focused on selling, the carrier becomes the operations behind the agent, not just the source of the product and packaging,” Deloitte says in its report.

5. Sofware-defined Everything

The entire operating environment—server, storage and network—can be virtual and automated. Tomorrow’s data centers not only lower costs, but improve speeds and reduce complexity of provisioning, deploying and maintaining technology footprints.

 

6. Core Renaissance

Carriers are looking for ways to increase efficiency and reduce costs. Policy, billing and claims are the core of the insurance business, and insurers of all sizes are investing in these systems to expand business growth and enhance customer experience.

Core renaissance efforts vary, but usually include a combination of the following approaches (image sourced from Deloitte's report):

 

(Shutterstock/Willyam Bradberry)

 

7. Amplified Intelligence

Built to enhance an individual’s knowledge, artificial intelligence is now a reality. Analytics techniques are growing in complexity, and insurers are applying predictive modeling to complex data sets.

Although the insurance industry is data-intensive, it lags behind other industries when it comes to analyzing it.

Insurers can leverage location-based information to assess and underwrite risk, make informed decisions to reinsure, detect and reduce fraudulent claims and improve customer experience. Many P&C insurers now enable tow trucks to be called based on the location of policyholders involved in an accident.

As natural disasters become more frequent, Deloitte suggests that carriers find better ways to model and visualize risk, so that agents can be more proactive in identifying risky policyholders and proactively suggest additional coverage based on location and natural disaster predictive models.

When a storm hits an area where a carrier has many insureds, the claims department can use geographic information systems to proactively send text alerts on how to protect property from disaster. Insurers also can overlay images of the damaged property with the path of the storm to assess damage and close claims.

8. IT Worker of the Future

Tech talent is a significant concern. The legacy-skilled workforce is retiring, and organizations are searching for those skilled in the latest emerging technologies.

From its report, Deloitte highlights which occupations are in demand and what “unusual” skills will assist in an IT job (image sourced from Deloitte's report):

Original post here: http://www.propertycasualty360.com/2015/08/18/8-tech-trends-that-will-change-how-carriers-do-bus?t=distribution-channels?ref=channel-feature

 

Fire at a local apartment building in Chilliwack

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                      Water Logged

              

There is no getting away from water in Canada's property and casualty insurance industry. Protection is available for much of the damage that water can do on the residential side, but not all. Will the overland flooding options now becoming available help cap the flow or will leaks in coverage remain? And what might this evolving environment mean for insurers and reinsurers alike?

Ask those in Canada's property and casualty insurance industry if they have concerns about water-related losses and their responses are likely to mirror those elsewhere in the world: a definitive "yes."

"Water-related losses, which incorporate any type of loss where water is involved (that is, weather and non-weather-related) continue to be the largest single driver of personal property claims in the country," says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction.

Veronica Scotti, president and chief executive officer of Swiss Re Canada, notes that over the last 10 years, there has been a significant upward trend of more frequent and severe weather-related losses across Canada. "This trend is alarming, and if we consider some of the climate scenarios for the year 2100, it could become an even greater threat," Scotti cautions.

Projections in the latest study from the Intergovernmental Panel for Climate Change (IPCC) include that the 20-year, single-day rain event could potentially occur every five years in Canada, she reports. "People often ask, 'Can we afford to adapt and mitigate?' But I would ask, 'Can we afford not to?'" says Scotti.

"Water-related property losses have been on a steady increase for some time," says Glenn Cooper, senior manager of public relations and social media for Aviva Canada. Looking specifically at his company's figures, Cooper reports that water damage claims accounted for 44% of dollars paid out on all property damage claims in 2014 compared to 39% a decade earlier in 2004. "The average cost per residential water damage claim has also increased significantly - going from $11,709 in 2004 to $16,070 in 2014, a 37% increase," he points out.

But these are losses that are currently insurable. What about situations in which overland flood losses are being absorbed by insurers (even though they are not technically supposed to be), that are most certainly being absorbed by governments through disaster assistance, recovery and rebuilding, or that are being absorbed (with no return) by individuals and communities alike?

Long a topic of conversation, debate and consternation, residential losses flowing from overland flooding - at least until this spring - were not covered anywhere in the country. But the devastation and expense of two different flooding events in southern Alberta and the Toronto area two years ago have pushed the issue, the discussions and proposed solutions to the fore.

ON THE RISE

"Over the past two decades, storms and floods have increased in frequency by a factor of 20, making overland flooding the most frequently occurring natural disaster and the one that affects the most people worldwide," comments Lapo Calamai, director of catastrophe risk and economic analysis, Policy Development, at Insurance Bureau of Canada (IBC). "Between 1900 and 2012, there were 289 significant floods in Canada - the equivalent of more than two major floods every year - representing almost 40% of all natural disasters ever recorded," Calamai reports.

Citing the continuing upward trajectory of water losses, McGillivray says an ongoing challenges for the insurance industry is "we have what amounts to a fire policy (designed for low-frequency/high-severity events) responding to water losses (which can be more scattered, depending on what you are looking at: low frequency/low severity, high/low, low/high, high/high)."

Peter Morris, president of Robertson Morris Consulting, reports that a number of factors are driving losses: climate change, aging urban infrastructure that is not being adequately supplemented to handle the increased concentration of population, and policyholders having "deeper basements with expensive finishing and contents."

"A big factor is the densification of cities, where we are seeing less and less permeable ground cover, and more pavement and roofs," McGillivray says. "When you get even a moderate rainfall event, the water often has nowhere to go. Couple this with climate change (more and more intense rainfalls) and you have a big problem."

LOSSES ALL AROUND

That problem became crystal clear with the Calgary and Toronto events of 2013. "The combined insured losses were approximately $3 billion, of which 35% to 40% was covered by insurer and 60% to 65% by reinsurer," reports Christoph Oehy, head of treaty underwriting for Swiss Re Canada. "Besides these large-loss events, there are obviously series of smaller events with localized pluvial and fluvial flooding," Oehy says.

The story is far different this year. "By mid-June 2015, the Canadian market did not see any major water-related activity that would be noticeable to the reinsurance industry," points out Joseph El-Sayegh, senior vice president of property and casualty, Canada for SCOR Canada Reinsurance Company. "While we have had some isolated events in Manitoba, British Columbia and Alberta, their consequences were concentrated and limited," El-Sayegh says.

Calamai does not see residential flood in Canada as a reinsurance issue right now, in light of the fact that "global reinsurance markets (Canada included) have plenty of available capital and the necessary risk appetite to take on more of the exposure that is unlocked as flood insurance becomes available in the primary market."

Unlike earthquake, "flood is not a 'tail' risk, meaning that hedging for the potential losses does not require that much capital," Calamai explains. "If climatic trends worsen significantly over the next few decades, resulting in more extreme and more frequent flood events," he notes, "flood risk could start to be seen as a tail risk, too," he adds.

"Regardless of the definition used for residential flood (including sewer back-up, riverine flood, storm surge or flash flooding), its insurance will become a reinsurance issue in Canada," El-Sayegh says. "The treaties that cover the cedents in the Canadian market typically do not exclude flood. The flood exclusion is enforced at the insurance policy level and the reinsurance market is counting on the quality of the underwriting of the insurance companies to mitigate the exposure," he explains.

"When insurers discuss the expansion of the product offerings to include excluded perils such as flood insurance, it exposes the reinsurance contracts to larger exposures that need to be identified, analyzed and quantified. The insurance and reinsurance industries at this stage are working together to reach that level of understanding," El-Sayegh says.

Overland flooding "potentially has a huge impact on reinsurance because it totally changes our view to, obviously, an aggregation of loss," Philipp Wassenberg, president and chief executive officer of Munich Reinsurance Company of Canada, said during a recent panel discussion in downtown Toronto.

"The fact is in most reinsurance treaties... if it's not getting in there, it's covered. So we have to find answers how to understand the risk and know what kind of aggregation it means," Wassenberg told attendees.

"As insurers begin adding overland flood coverage to their homeowner policy wordings, reinsurers will be called upon to contribute in the event of a natural catastrophe and will, therefore, be affected to an even greater extent by these weather events than has been the case until now," Morris predicts.

"Reinsurers are using their data to gain insight and build tools to help insurers get ahead of the issue," says Marilyn Horrick, national vice president, GUARANTEE GOLD for The Guarantee Company of North America. "We, too, are managing our exposure in developing risk strategies, including underwriting tools necessary to avoid adverse risk selection and, for the customer, offer targeted mitigation and prevention advice."

ON OFFER

But the lack of available overland flood models - until recently, at least - has made risk assessment difficult.

This March, however, Willis Re introduced a suite of flood analytics for the Canadian insurance market designed to provide insurers the means to develop and enhance underwriting and risk transfer strategy, manage and monitor portfolio accumulations, and calculate probable maximum loss estimations.

"Insurers need to leverage the latest science and analytical methods to evaluate and manage local and regional flood exposure," Geoffrey Lubert, managing director of Willis Re Canada, noted in a statement at the time.

Guy Carpenter & Company LLC also introduced a new Canada flood model focusing on riverine flooding, with the view being that that "captures the majority of the hazard," Joseph Becker, company research hydrologist, said in April. Currently, the flood model evaluates fluvial (or riverine) overland flood risk, together with the off-plain component of such events.

Scotti's view is both risk awareness and risk assessment capabilities have greatly improved over the last two years. "For example, flood zones are now widely used in the underwriting process and flood-modelling tools are becoming available to better assess the accumulation risk. These advancements clearly prepare the grounds for residential flood products," she says.

This, in fact, started to happen this spring: The Co-operators Group Limited is now offering a flood product in Alberta, available as an endorsement to the insurer's homeowners' insurance policies and which provides protection against water and sewer back-up, water from intense rainfall and overland flooding from an overflowing body of water such as a river or lake; and Aviva Canada is offering coverage in Ontario and Alberta, available as an endorsement to personal property insurance policies that have sewer back-up protection in place, and "covers most aspects of water entering a home and causing damage - including overland water," notes Aviva Canada's Glenn Cooper.

But are the current residential flood offerings "true" overland coverage?

Morris says "yes," noting that each has stipulated the coverage is only available as an add-on to policies that already have sewer back-up coverage.

Characterizing them "a great first step," Calamai suggests that the biggest value of the new offerings may be that insurers are showing they are "ready to step up and innovate to serve the public."

Despite that positive, though, "the insurance industry on its own will unlikely be able to ever provide fulsome coverage for everyone, especially for those who need it the most," Calamai says. "The international experience tells us that a portion of Canadians, those located in the highest-risk areas, may never be eligible for coverage - or may be offered limited products and/or be faced with potentially unaffordable risk-based premiums. That's just the basic economics of flood insurance," he says.

But Leonard Sharman, senior advisor of media relations for The Co-operators, says the insurer's water endorsement is not meant solely for areas with a small risk of flooding. It is meant "to meet a previously unmet need," Sharman says.

"Recognizing that those at a high risk of flooding would pay an appropriate amount in terms of premium, we built in flexibility to allow those clients to manage their premiums," he notes. Users can select the amount of coverage and deductible, which is offered as a percentage of claims, to suit their particular comfort level, he explains.

In addition, discounts are offered for clients who take certain preventive measures, including installing backwater valves or sump pumps with back-up power, and compensation is available to clients who protect their property in advance of a flood.

At Aviva Canada, "while we cannot offer the product to everyone, the vast majority of our customers will have coverage available to them," says Cooper. The overland water component of the insurer's property water protection package "is a new peril for personal lines insurers, and there is an incremental premium associated with the risk. As with all insurers, there will be some eligibility criteria, including some exclusions."

Donna Ince, senior vice president of personal insurance for RSA Canada, reports the insurer is now developing "what we believe to be a more comprehensive water damage solution than the historic market offerings. We are participating with IBC habitational committee as we build our revised sewer and flood wording that will ensure we learn from the shared industry knowledge."

The company is "looking to announce further details on our new overland water strategy in the months to come," Ince says.

"The expectation is that within the next few months many insurers will provide coverage, in one form or another," says El-Sayegh. "There are no expectations that the private industry will be able to cover all exposures. Therefore, the involvement of the government will still be required, especially to ensure that high exposure risks are protected," he comments.

"While there's still debate on how to manage the needs of those most at risk, it has started a dialogue that wasn't happening before," Horrick says of the release of new flood products. "Companies, including ours, are coming to market with viable solutions from policyholder communications to enhanced coverage."

But is the innovation to date enough?

Morris notes that adverse selection is a major challenge. "Without an adequate spread of risk across a broad range of policies with varying degrees of exposure, it is difficult to generate the premium necessary to cover the losses," he says.

"To the extent that coverage is only offered to customers with a manageable exposure to overland water, the cost of providing the coverage should be fairly reasonable," he says. But for homeowners with a severe exposure, "it will be a challenge to provide the coverage at a reasonable price, especially for those homeowners at most risk of having an overland water loss," he adds.

"For more than 90% of the homeowners across Canada 'overland flood' coverage should be possible and affordable," Oehy says. "There can be regions where flood coverage is very restrictive or cost-prohibitive due to the high risk of flooding. For these high-risk properties, a partnership between the public sector and the insurance industry is needed to provide a sustainable solution," he notes.

For the highest-risk properties, "a purely private, risk-based product for those high-risk consumers is likely to face significant availability and/or affordability constraints," Calamai notes.

For the highest-risk priorities, "what needs to happen is a public-private partnership between insurers and governments at all levels. It requires a degree of risk-sharing between all stakeholders, and clear roles and responsibility for all - including responsibility around financial risk management as well as risk mitigation."

Cooper agrees. "Maintaining the availability and affordability of the product requires collaboration and commitment from all levels of government in Canada," he suggests.

"For the majority of insureds, overland residential coverage can be economically accessible and the viability of which is dependent upon the collaborative efforts of government, insurance industry and homeowners," Horrick adds.

Actions taken by all levels of government to reduce the risk of flooding and water damage must include "increased investment in new infrastructure and updating building codes to reduce the impact of future storms on businesses and personal property," Ince notes.

"Insurance (and, therefore, reinsurance) of this risk is possible provided there is transparency in the coverage offered, as well as transparency between the various government agencies and the insurance and reinsurance industries regarding the mitigation factors implemented," El-Sayegh comments.

"It seems that some of the new flood products are bundling all water damage claims together, whether sewer back-up and overland flood; while others are keeping the overland flood product optional as an add-on to the existing sewer back-up coverage," he observes.

"As we saw in 2013, the cost of water-related losses to insurers and reinsurers can be significant. Introducing new flood insurance products that more clearly outline the coverages and the costs of such coverages will help insurers and reinsurers better anticipate the losses and include them in their capital requirement calculations," he says.

"The market will, ultimately, demonstrate to what extent this is a commercially viable proposition - and to what extent consumers have the resources to take this on," Calamai points out.

ACCESS TO DISASTER ASSISTANCE

If "overland flood" coverage is available, what does that mean for currently constituted disaster financial assistance arrangements (DFAA), which do not apply to insurable loss?

Morris notes that availability is, ultimately, a political question.

"With coverage now being available in the open market, it is unlikely the federal and provincial governments will feel compelled to provide financial assistance to homeowners who have chosen not to purchase this coverage," he suggests.

"Technically, through disaster financial assistance (DFAA), only payments for damages that could not have been reasonably insured are eligible," Calamai explains. "Whether or not, following a disaster, the government would deem flood risk to be eligible depends on several factors, including availability, affordability, take-up by consumers and possibly even public awareness."

Scotti's view is that, at this stage, it is probably too early to consider residential flood as an insurable loss in the context of DFAA. "However, if the product becomes widely available to the consumer and they have a choice to include or decline this coverage on their policy, then residential flood is insurable."

Morris's advice to brokers? "The safest course of action will be for the broker to offer the coverage to the client rather than avoiding the discussion and placing coverage with an insurer that does not offer overland flood coverage," he says.

MITIGATION EFFORTS

A new study - commissioned by The Co-operators and released in May -assesses the level of preparedness of 15 major Canadian cities for flooding caused by extreme rainfall, relative to 16 areas of flood vulnerability.

Among the strengths identified are that most Canadian cities require backwater valves for new home construction, up-to-date flood plain maps are being developed, land use planners in most cities are using the maps to restrict building in flood-prone areas, and urban drainage maintenance is on the rise.

Work in this area will continue, directed by the recently announced Partners for Action (P4A) applied research network at the University of Waterloo, which is co-founded by The Co-operators and Farm Mutual Reinsurance Plan. The work of P4A, meant to bring together stakeholders, will include monetizing economic costs and benefits of adaptation, and promoting the need for improved flood mapping country-wide.

At an IBC symposium this spring, Swiss Re Canada's Christoph Oehy said "the risk assessment for flood is complex and flood hazard maps are a necessary precondition to make insurance possible."

Based on fluvial flood exposure in Canada, Swiss Re estimates about 9% of the residential insurable values are at risk of flooding at least once every 100 years, and about 3% at least once every 50 years, while "almost 85% of the residential insurable values are only very remotely exposed to fluvial flood risk, meaning they are outside of the 500-year flood zone," he said. "Probabilistic flood models are needed. They allow getting the complete risk picture and help to understand the accumulation risk taking into account the correlation along the river network."

Detailed information is essential when it comes to modelling flood risk and estimating potential losses, Vaclav Rara, a flood model developer and hydraulic modeler at Aon Benfield in Prague, emphasized during the Toronto installment of Aon Benfield's Catastrophe Analytics Roadshow in June. Hazard perimeter "can vary in fewer metres by metre," said Rara, who served as part of the team that created the company's new probabilistic flood model for Canada.

IBC, for its part, has engaged JBA Risk Management to "develop a best-in-class flood model customized for Canada, building on best practices in modelling methodology and using all available input data," Calamai reports.

Expected to be completed by the end of the year, the model will include both fluvial (riverine or on-plain) and pluvial (urban or off-plain) flood risk, and will provide a consistent view of risk for virtually the whole of Canada, he says.

"There is a lot of momentum on the overland flood topic across the whole insurance industry, but also including governments, brokers and reinsurers," Scotti says. It "needs to be maintained so that in the near future, Canadian homeowners can get wide access to insurance for overland flood across the country."

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Thank you for reading and stay safe

Darren Miller