MIAMI, Jan. 7, 1999 — Comprehensive information, pooled from many insurers, is essential to insurers' operating success and profitability in national markets around the world, a U.S. insurance leader said today.
In a keynote address to the Miami Insurance Rendezvous Conference of the International Insurance Council, Fred R. Marcon, chairman, president and chief executive officer of Insurance Services Office, Inc. (ISO), said major changes in the global marketplace point to the need for information that enables insurers to price and service property/casualty insurance and fight insurance fraud.
"One key unlocks the door to profitability and growth in the competitive arena: information — complete, comprehensive and timely information that helps insurers know their customers and their markets," Marcon said.
Marcon's firm, which maintains an insurance-information database that's among the largest nongovernment databases in the world, is a leading provider of information for and about the U.S. property/casualty insurance business.
The ISO chairman observed that with the decline of protectionism, the privatization of national insurers in Latin America, and increasing competition in mature markets such as Japan, insurance companies face new "uncertainties, risks, and the need for new tools to compete successfully in a new environment."
Detailed information, aggregated from many insurers, "allows an insurer to assess risk, price coverage appropriately, and offer the optimum combination of price and service that results in sustained profitability," said Marcon.
The foundation of this information is detailed premium and loss data "collected from the largest possible pool of insurers," said Marcon. This data, he added, "Becomes the basis for accurately estimating future claims payments." He noted that insurers in the United States long have pooled data from many insurers to generate more information — and more accurate estimates of future claims losses — than any single company could generate based solely on its own loss experience.
Marcon stressed that such estimates of future claims payments foster competition in the marketplace by providing information on which individual insurance companies can base their independent pricing decisions and business strategies.
To be truly effective, an insurance-information database must rely on accurate and timely reporting by competing insurers. "So while no insurer may have enough loss experience for all aspects of ratemaking in any single line of insurance, a broad aggregate database created by the pooled information of many insurers will provide reliable loss predictions," Marcon said.
Marcon assured the heads of insurers from around the world that "pooling data doesn't mean that competitors have access to each other's information." With reference to ISO's practices in the United States, he explained: "We maintain strict confidentiality safeguards for each company's data," he said. "We reveal it to no one — not even government — without each insurer's permission."
Pooled claims information is essential to identify and prevent losses due to fraud, Marcon said. Noting that U.S. property/casualty insurers are losing $20 billion a year to insurance fraud and European insurers are losing about half that much, Marcon described the development of an industrywide all-claims database in the United States.
"In the U.S. we are cracking down on crooks and denying phony claims by pooling data on risks, claims, vehicle identification numbers, doctors, lawyers and many other elements that, examined together, can expose patterns of fraud." He noted that ISO is exploring with various international organizations ways to use claims data to fight fraud internationally.
The developing U.S. system, called ISO ClaimSearch, will use automated fraud-recognition software — sophisticated smart technology to cross-check and analyze claims to detect fraud. "By tapping into the industry's claims database, law enforcement agents and insurance investigators can detect patterns that help uncover staged auto accidents, policyholder arson, fake burglaries, phony medical claims and misrepresentations by employers who buy workers compensation insurance policies," Marcon said.