Making the World a Better Place
Perspectives from Verisk Analytics President Scott G. Stephenson
The insurance industry is dedicated to the protection of people and property worldwide and has made significant contributions to the advancement of business and financial risk management. With the development and application of new technologies — including predictive analytics and geolocation services — advances in actuarial science have implications that extend well beyond the insurance industry.
Verisk Analytics President Scott G. Stephenson shares his thoughts about how the science and applications of insurance are addressing some of today's major public challenges.
Over the years, the insurance industry has evolved into more than just a business. Beyond improving industry processes, advances in actuarial science have taken on a critical role in addressing healthcare fraud, fire losses, green living, fair insurance pricing, catastrophe risk, and climate change.
Healthcare fraud is a growing problem in the United States. In fact, the increasing cost of fraud means an average loss of between $200 and $800 per person or up to $4,000 a year for a family of five — forcing consumers to face not only higher premiums but lost health benefits, inaccurate medical records, and increased out-of-pocket spending.
At Verisk Analytics, our HealthCare Insight (HCI) unit provides data modeling tools and analytics designed to measure fraud, waste, and abuse (FWA), as well as identify key areas of risk to help maximize claims payment accuracy and reduce claims costs.
To bring into focus the immense challenge for society, HCI also publishes Profiler Magazine, an industry standard on healthcare FWA. Within each issue is an abundance of tools, resources, and information to educate both industry professionals and consumers on identifying and preventing FWA.
Fire, a significant cause of death and injury throughout the United States, also results in substantial property damage and related losses to individuals and businesses each year. In the last decade, fires have caused direct insured losses of more than $120 billion and countless billions in related costs. One way to minimize those damages and the risk of injury or death in the event of a fire is to have a well-equipped fire department ready to deploy as quickly as possible.
For 40 years, the ISO unit of Verisk Analytics has been helping communities evaluate and develop more effective firefighting capacity through its Public Protection Classification (PPCTM) program. The PPC program gives insurance companies and fire departments a standard measurement of the effectiveness of fire protection in more than 47,000 fire districts throughout the country. It also provides help for fire departments and other public officials as they plan, budget, and justify improvements for fire protection services.
In recent years, the movement toward more environmentally friendly products and services has touched nearly every industry sector, from energy and manufacturing to retail and financial services. Federal, state, and local governments are considering and enacting legislation that offers incentives for owners and builders to "green" their properties. The insurance industry is beginning to follow suit.
ISO recently introduced the insurance industry's first standard coverage option for commercial property owners interested in rebuilding damaged property with green alternatives after a loss. The coverage augments existing replacement-cost coverage for repairs made using more energy-efficient, environmentally preferable materials, products, or methods, such as those recognized by Leadership in Energy and Environmental Design (LEED) and ENERGY STAR. The coverage can include additional expenses related to green upgrades, such as building material recycling; professional design, engineering, certification, and equipment-testing fees; and an extended period of restoration under business-interruption insurance.
When insurance rates are fair, the premium for each policy is directly associated with the risk that the insurer assumes in issuing the policy. But the information used to rate policies can be incorrect, outdated, or incomplete. A significant number of rating errors come from policyholders who may inadvertently or deliberately provide incorrect information. Policyholders who misrepresent underlying policy information can cause honest individuals to pay more for their insurance than they would otherwise.
The Quality Planning (QPC) unit of Verisk Analytics enables fair pricing for automobile insurance. In addition to promoting equity among consumers, QPC supports the reasonable expectations of insurance company shareholders and can reduce auto premium leakage. By using advanced statistical algorithms, predictive modeling, and state-of-the-art pattern matching, the QPC Rating Integrity SolutionTM can identify inaccurate policy information and help recover lost premium.
Improved catastrophe risk modeling technology has helped insurers enhance their underwriting and rating processes. It has also played a key role in the development of effective catastrophe risk management strategies — offering businesses and governments worldwide a better way to plan for, react to, and recover from potentially catastrophic events, such as earthquakes.
Verisk subsidiary AIR Worldwide provides sophisticated risk modeling software and is a key sponsor of the Global Earthquake Model (GEM) project led by the Organisation for Economic Co-operation and Development (OECD). Through its involvement with the GEM initiative, AIR is working to create an independent standard to estimate earthquake risk, raise awareness, and promote mitigation strategies, such as stronger building code enforcement.
Despite the ongoing political debate regarding the factors that lead to global climate change, there is little doubt the issue will continue to have important political, economic, and scientific implications for society. The insurance industry is making great strides in leading a response to climate change risks.
For more than 30 years, Verisk subsidiary Atmospheric and Environmental Research (AER) has developed analytical tools to help measure and observe the properties of the environment by using remotely sensed satellite and radar data and to translate those measurements into useful information for insurers, businesses, and governments. Such information can show which neighborhoods and properties are affected by severe winds, hail, or lightning; or have insufficient setbacks to minimize wildfire damage; or are at increasing risk from rising sea levels.
AER has created state-of-the-art algorithms for modeling and simulation of the atmosphere to help improve our knowledge about the composition of the atmosphere and refine our understanding of the environment. Insurers, scientists, and policymakers are using such models to create potential scenarios that estimate risk and evaluate the magnitude and consequences of both regional weather and global climate change.
In this article, I've discussed just a few ways Verisk and the insurance industry are helping to curb healthcare fraud, reduce fire losses, promote green living, enable fair insurance pricing, manage catastrophe risks, and reduce weather and climate change risks — ultimately protecting both people and property.