Verisk Review Archived Articles

ISO's Fire Suppression Rating Schedule (FSRS) is the manual we use in reviewing the firefighting capabilities of individual communities. The schedule measures the major elements of a community's fire suppression system and develops a numerical grading, the Public Protection Classification (PPCTM). We assign a PPC from 1 to 10, with Class 1 representing the best public protection and Class 10 indicating no recognized protection.
Fire is generally considered the most critical hazard in the underwriting process, whether covered separately or as part of a package. In comparing the potential loss among buildings and in evaluating a single building, underwriters consider the Probable Maximum Loss (PML). The most common definition of PML, and the definition ISO adopts for commercial fire purposes, is an estimate of the largest loss a building or a business in the building is likely to suffer because of a single fire, assuming proper functioning of the existing mitigation features (sprinklers, local fire department response, etc.).
It is commonly thought that as many as six of the top 10 historical insured hurricane losses in the United States occurred in 2004 and 2005, with Hurricane Ike in 2008 claiming its place among the top five. The rankings are based on reported insured losses at the time the events took place, and while they may be trended to today's dollars, they are not trended to today's exposures. The number and value of properties in the United States, and particularly in areas at risk, have increased dramatically in the past century, well beyond the rate of inflation.
Insurance is a unique industry. It’s one of probably very few in which a company doesn’t know the actual cost of the goods sold as the product is being sold. Nevertheless, the U.S. property/casualty market is the largest in the world at about $540 billion in direct written premium for 2013. Loss and loss adjustment expenses (LLAE) amounted to about 66 percent of earned premiums last year.
In what is one of the most memorable scenes of the 2001 Oscar-winning movie A Beautiful Mind, John Nash (played by Russell Crowe), the Nobel Prize–winning mathematician, is shown cracking encrypted enemy telecommunication by looking for patterns in magazines and newspapers to uncover a secret Soviet plot. Of all the mathematical references throughout the movie, that scene stands out as chilling and powerful — possibly because of the natural ease with which John Nash effortlessly connects the patterns between texts and numbers hidden all around him.
In attempting to uncover and mitigate fraud in today’s claims process, access to more comprehensive industry data means investigators are uncovering patterns and associations of potentially fraudulent entities more quickly and thoroughly. Large case volumes and associated complexities are driving factors in seeking better ways to analyze fraud in claim scenarios and develop accurate conclusions to reduce investigative cycle time.
Other than those who work in the fire service, people don't usually think about the risks of fire — perhaps except when they see a fire truck going down the street. Those in the fire service, however, are focused and determined to achieve their mission to reduce fire injury and fatality rates, decrease property damage, and contribute to a community’s reputation as a safe environment for homeowners and businesses.
The roots of risk management as it relates to the physical characteristics of commercial and multifamily real estate date back to the early 1970s. During that time, the appraisal, commercial property insurance, construction, and engineering industries actively began to seek ways in which to improve their respective areas of service. The goal was to depict more accurately the physical risk aspects of investing in, owning, and maintaining commercial real estate assets.
Insurers come in a variety of forms — varying by size, the type of insurance they write, and overall goals. Regardless of size and type of insurance, virtually all carriers place at least one of the ­following three goals at the top of their priorities: increase market share, lower loss ratios, reduce expenses (combined ratio). The strategies that insurers use to achieve those goals are as varied as the insurers themselves.
In the workers' compensation space, not only have claim costs increased because of medical issues, but the landscape has also become much more complex. Along with the elevated incidence of fraud, economic fears, and a growing dependency on prescription drugs, more specific issues are challenging the industry, such as increased use of intrathecal pumps and spinal cord stimulators as well as diagnoses related to subjective symptoms (for example, reflex sympathetic dystrophy [RSD], fibromyalgia, post-concussion syndrome).

Is Data the New Oil?

By Perry Rotella
About a year ago, on a CNBC Squawk Box segment, “The Pulse of Silicon Valley,” host Joe Kernan posed a question to Ann Winblad, the legendary investor and senior partner at Hummer-Winblad: “What is the next really big thing?” Her response: “Data is the new oil.” Winblad talked about predictive analytics as the new hot spot for venture investing and discussed the growth of companies that can derive value from the huge amounts of data being stored.
Because of society's reliance on the electrical grid, space weather events — such as severe solar storms — can wreak havoc on the electric power supply and trigger losses from business interruption and damaged physical assets. Verisk Review recently spoke with Kyle Beatty, vice president of business solutions at Atmospheric and Environmental Research (AER), about the impact of space weather events, the financial consequences to insurers, and how insurers can manage and evaluate their exposure.
In today's global business landscape, viewing the supply chain as a set of tangible assets and related liabilities to be managed and insured is no longer sufficient. Rather, increased risk exposure requires a holistic risk management program that focuses on an organization's assets — both tangible and intangible — across all operational functions. Such an approach allows supply chain managers to make better and more informed distinctions between the competing priorities of process cost-effectiveness and controlled efficiency of enterprisewide risk exposures.
Those doing business in the U.S. mortgage lending industry are operating in an extremely complicated environment. Those working on the collateral valuation side of the transaction know it all too well. New rules and the regulatory changes being implemented under the Consumer Financial Protection Bureau have made it far more difficult for banks to manage their appraisal processes in-house. Fortunately, the valuation industry has a well-developed system of vendor management companies that have traditionally served lenders with complex title- and appraisal-related processes.

Section 111 Reporting: Getting It Right

By Dorothy E. Kelly and James E. Burnham
Nearly four years after legislation mandating that property/casualty insurers participate in an automated exchange of settlement and medical claims data, the Centers for Medicare & Medicaid Services (CMS) at last is poised to implement mandatory insurer reporting. The provision requiring this exchange was enacted in December 2007 as Section 111 of the Medicare, Medicaid & SCHIP Extension Act. Commonly referred to as "Section 111," the provision has prompted insurers to alter claims-handling protocols and invest in technology to facilitate compliance with the law.
Desk adjusters play an important role in an insurance organization. They estimate and settle simple claims such as theft, vandalism, or minor fire and water damage over the phone, allowing field adjusters to focus on larger, more complex claims. And when field adjusters don't need to be deployed to loss sites, insurers can more effectively control operating costs. Using desk adjusters also allows insurers to maintain high customer satisfaction ratings by settling claims on the spot.
Verisk Review recently spoke with industry leaders about what role insurance analytics and Big Data play, how predictive analytics is changing the actuarial function, and what areas of analytics are ripe for advancement.