I never predicted a riot – The English summer that proves the value of location intelligence tools

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25 August 2011
Catherine Stagg-Macey

In the usually quiet English summer, the country has been hit by a series of riots in several major cities. Whilst politicians and social commentators offer up the analysis of how it all happened, and homeowners and small business clean up the chaos, insurers are counting the costs. There are estimates of £200 million in claims to be picked up by the sector but the true cost of this wont be known for some months.

If there was ever a business case for the use of geographic information systems in insurance, this must be it. In the UK, the top 10 insurers in commercial and personal property together earn approximately 85% of the premium in this sector. This is huge exposure indeed. Unlike several other areas around the world, the UK is not known for large natural catastrophes. So riots and the occasional flood are the country’s reminder to insure.

In the Bunsfield oil depot explosion which impacted a large area of neighbouring commercial and residential properties in London, RSA was able within a few days to estimate the damage to their policy holders and the likely payout in claims.

Months later, with all claims finally in, the estimation was within a handful of percentage points of the actual amount. This accuracy is important to policyholders and shareholders alike. It means accurate allocation of reserves and not holding up capital unnecessarily.

GIS systems or location intelligence solutions provide valuable data at the point of underwriting and claims assessment at a portfolio level. For the commercial property underwriter, the solution provides maps highlighting other insured properties in the area. Depending on the appetite for new risk given the aggregate risk for the area, the underwriter can then decide to proceed or not. Making this decision without the support of spatial data would be nigh on impossible.

For assessment of likely claims, GIS systems offer similar strong business advantage. Plot the area of impact of the riot or flood, and the system is able to sum up all current exposure in that area. This assessment of the aggregate risk can also include items not typically post coded such as bridges and public toilets which large property insurers.

GIS solutions have already proven their value to the insurance sector. Some of the systems are out of date or not integrated to underwriting systems to support real time decision making. With legacy modernisation imposing a major drag effect on insurers IT budgets, GIS solutions may have to wait some time to attract the correct level of investment.

In the coming quarter, Celent will publish a report on GIS vendors in the insurance sector.

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