Intranet based Underwriting Solution for Flood Risk
A web browser-based, underwriting application, which combines flood hazard and loss data, loss modeling, and underwriting guidelines can be used for developing underwriting workstations. It can be used by the underwriters to analyze their flood-insured accounts consisting of many locations and policies, by determining the flood risk associated with those locations. This information helps the underwriter to decide about the premium and the policy structure. This will comprise of the following steps:
- Display of base map: A base map displays the geographical area for a specific location, which is defined by the user. Alternatively, the user can select a specific location on the generated base map, which returns the latitude and longitude of that location.
- Display of flood map: A flood map displays the flood zone around a specific location.
- Detailed Flood Risk Analysis: For more accurate results, a sophisticated flood-risk engine can be added in the system, or it can be done through a separate analysis server.
- Computation of “RiskScore”: The location is assigned a low-risk, moderate-risk, or high-risk, and a corresponding rating (defined as “Risk Score”) is assigned
- Use of underwriting guidelines: The specific guidelines will be used to decide the premium and policy structure for the location.
The use of GIS-based Intranet applications for underwriting provides obvious advantages over the desktop applications or traditional client/server applications for enterprise-wide deployments. No continuous upgrade of desktop computers is required, which results in tremendous time and cost savings, since the upgrades to software occur only at one central computer.
Fig 2: Catastrophic insurance market share study by an insurance company
Strategic Capital Allocation by an Insurance Company
A GIS-based optimization study can be performed to maximize a company specified objective subject to company specified constraints. The input to such a simulation would include the following:
- The variable a company wishes to optimize; such as profit, premium or market share
- Acceptable loss level – by region (defined through a GIS framework)
- Constraints (available capital, risk appetite and governmental guidelines for each region)
- The exposure (insured value, policy structure, and building characteristics for each location)
- The risk profile (generated through using a separate risk model)
A GIS software application, which uses a suitable optimization algorithm in the tool, can be used to arrive at an optimum allocation of capital by region. This application can also be used to identify areas of opportunity, and for quantification of regions with greatest potential incremental profits, aiming at maximizing the return on limited available.
GIS Software Applications for the Study of Terrorism Risk
The GIS software applications can also be used for the study of man-made disasters, but the limited understanding about the nature of these risks poses a limitation for such applications. Here is a typical framework for a hypothetical application for study of terrorism risk:
Input
- Exposure (for example, the location and the insured valued for the critical buildings within a specified region, and the nature of built environment around them)
- Hazard: Probability and the possible nature of the terrorist attack (based on input from experts in this field), defined as events.
- Vulnerability: Inventory of building types in the region and their proneness to terrorism hazard
Model
- Develop loss scenarios corresponding to all possible events, using the above input
In view of the spatial component involved in this overall framework, a GIS application can be used in this case too. Of course, as it is true with any application, the results will be as accurate as the data used in the application, but at least a preliminary study can be made, even if some limited data is available. The results from these scenario runs can be used by the insurance companies to adjust their estimates of the probable maximum loss.
Conclusions
Insurance companies are increasingly using various risk management techniques to reduce their losses due to catastrophes, both natural and man-made, and to optimize their overall benefits. Since the process of risk management involves analyzing huge volume of the spatial data in a fast and efficient manner, use of GIS functionality within the overall framework of a risk management software application provides many benefits. Such GIS-based software applications are being used extensively, and in many ways, for effective risk management by the insurance and reinsurance industry. Some new innovative ways to explore the power of GIS software applications for the study of new types of risks have also been tried in the recent past and the trend is expected to continue in the future as well.