Location Intelligence provides the new truth in insurance

Marc Hobell, director EMEA Pitney Bowes Software

Insurers are facing a tough stance from regulators cracking down on unfair pricing, with some saying that certain customers are now disadvantaged.  Late in 2017, the Financial Conduct Authority launched an investigation into fairness around charging for home and motor insurance. ‘Loyalty pricing’, in which long-term customers are excluded from discounted insurance that new customers benefit from, is one area under surveillance. The FCA is also scrutinising insurers that amend their charges based on how ‘price sensitive’ their customers are, depending on demographics, age and marital status, for example. Estimations are no longer good enough, and the industry must uncover new truths to generate accuracy. For smart insurers, location intelligence provides the answer and reveals truths, and it’s becoming increasingly important to their organisations: more than 75% of the financial services and insurance industry rate location intelligence as either very important or critical to their success, in the Dresner Advisory Services 2018 Location Intelligence Markets Study.  

Challenges in 2019

In 2019, insurers will come under increasing pressure not just from regulators but from consumers and competitors, too. Consumers’ behaviours are constantly changing and the industry is racing alongside to keep up. Think Zipcar with hourly car rental, AirBnB for commitment-free travel, the property market tipping towards rental rather than house buying. Then there’s the Internet of Things connecting our homes, our appliances and our devices as smart sensors collect data: we can check our home security cameras on our mobile devices as we travel and control our home lighting even when we’re away. The way we interact has also changed, and this shift to digital interactions means that consumers expect to self-serve. They want instant quotes and claims decisions, fast resolutions to questions and claims, queries on policies answered swiftly, no-claims digital uploads and SMS reminders.

These changing behaviours and trends impact the way insurers underwrite risk, price policies, make claims decisions and engage with customers. Consumers demand immediacy, responsiveness and agility from the insurance industry. These behaviours have undoubtedly been the drivers behind a new insurance age, a revolution within one of the world’s oldest institutions and a surge in InsurTech innovation. With the challenge now for insurers to differentiate in the highly-competitive environment, they are looking to InsurTech as an enabler, driving technology innovation to mitigate risk, generate accurate underwriting, improve the customer experience and recognise loyalty.

At the heart of some of InsurTech’s most disruptive, transformational technologies is location intelligence, powering accurate risk-management, facilitating swift decision-making and minimising error. Location intelligence built on precise data reveals previously-hidden truths and enables razor-sharp accuracy in forecasts, generating cost savings for both insurers and consumers alike.

How does accurate location intelligence drive down costs?

Location intelligence – derived from pinpointing precise geographic data points – combines big data and location insights to create an accurate view of current and future risk.  As long as the data itself is accurate, location intelligence enables insurers to eliminate the concept of ‘close enough’, giving insurers the ability to price their premiums accurately and effectively. In an industry in which inaccuracy and estimations can cost billions, location intelligence can quite literally save insurers their business. Insurers have access to powerful, advanced platforms which interpret geographic data, transforming it into meaningful, practical, correct information on which to base policies, claims and risks.  For example, no longer basing your home insurance policy on your postcode but calculating it based on the specific geographic coordinates of your home and weaving this with external risk factors – historic flood data, fault lines, weather patterns and population insights, for example – to provide absolute clarity within your policy. This protects both the consumer and the insurer, driving down costs for both. But the data must be fresh, cleansed and correct.

Catastrophic California Wildfires and their impact on insurers

One example of the cost of building premiums on inaccurate data can be seen following the California wildfire season of 2017. That year the California landscape changed forever as a result of devastating wildfires, some of which were among the state’s most destructive fires on record. Thousands of structures burned across an area of over a million acres. Insurance claims rose into the billions. For one top 10 U.S. insurer, those losses were largely unforeseen. From a sample of 100 properties, on which more than $100 million in claims were paid, just 3% had previously been identified as at high risk from wildfire loss based on zip-code level data.

The insurer gave Pitney Bowes access to the list of 100 properties to run against its own, more precisely geocoded wildfire risk location data. When Pitney Bowes analysed the data, it discovered that between half and three-quarters of the properties would have been identified as high risk had the insurer used more accurate location data.  For insurers ‘close enough’ is no longer good enough. Data must be laser-focused in its accuracy. At postcode or zip code level, there’s still room for error. Using geospatial data means policies are built on a foundation of truths – of absolute accuracy.

Research carried out by Perr and Knight is consistent with this. The organisation looked at policies for homeowner and car insurance and considered how premiums would be priced using commonly-used data sets such as zip codes and streets. They also considered how they would be priced if using pinpointed location data. Although they found no major change in pricing, in those that would be priced differently the range of under- or overpricing premiums was significant, with some homeowner policies under-priced by as much as $2,800 a year per policy. Under-pricing devalues a business and impacts the bottom line.

Futureproofing insurance

As the insurance industry regenerates to meet the evolving behaviours of its customers, location intelligence reveals hidden truths on which insurers can confidently base their decisions. Next generation insurance is built on geospatial data and location intelligence. Visualising data through maps simplifies data and makes it meaningful, while SaaS-based platforms make this information accessible. Risk becomes easier to pinpoint with absolute precision, pricing becomes more accurate and estimations are eliminated. Customer interactions become more personalised as the customer experience improves, and insurers develop a strategic competitive advantage.

Come and see us at GeoInsurance Europe from the 22-23 January at the Park Plaza, Victoria, London. Register here.

Find out more in the Forbes Insight report on the importance of hyper-accurate location data to the insurance industry.