Spring 2013


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Verisk Review is a journal of ideas and opinions from Verisk Analytics. The publication provides expert commentary on the science of risk, including risk management, predictive analytics, property/casualty insurance, catastrophe management, fraud prevention, and a wide range of other topics.

Contents

Insurance Industry Analytics: Where Are We Headed?

By Scott G. Stephenson

Innovation produces more effective analytics, and innovative analytics produces a more effective insurance company. In personal auto, differences in state regulations and an expanding data pool create the need for ongoing refinements and augmentation. Enhanced geographic data is energizing the use of analytics in the homeowners arena. More geographic data means greater segmentation and improved risk identification. So what direction is the insurance industry taking when it comes to analytics? The answer may be, it depends.

Is Data the New Oil?

By Perry Rotella

We've heard the phrase "data is the new oil" more often in recent times. If we accept that premise, then the 21st century chief information officer becomes a fulcrum to leverage the value of data as an indispensable business resource; then the "data refinery" is the new strategic operating model for companies with digital exposure; and then data is also the fuel for driving an operation to its desired destination.

2013: The Pendulum Swings

By Christopher H. Perini

Despite the apparent emergence of a rebound, no one expects the world to look as it did before the recession. The events of the last several years, such as Superstorm Sandy, have been an excellent teacher. Familiar risks have grown, and new risks have emerged — both of which augment the need for far greater actionable knowledge on the part of underwriters, risk professionals, and business leaders. Learn what dealing with magnified risks means and what insurers can do to manage them.

Strategic ERM: The Key to Engineering High-Performance Insurance Enterprises

By Michael R. Murray

Engineering a truly high-performance insurance enterprise capable of surviving and thriving far into the future requires fully integrating and optimizing across all links in the value chain. Further, it must do so in a manner that allows for all the uncertainty born of the inherently random nature of insurance loss experience and as yet unknowable economic, financial, political, legal, regulatory, and technological developments. Impossible? Not with strategic enterprise risk management.

Better Together: Analytics, Data, Corporate Culture

By Marty Ellingsworth

Every aspect of the insurance business can benefit from an improved ability to predict the future. What about being able to be as precise as possible in pricing and avoid costly risk assessment mistakes? How does a carrier allocate investment dollars across the enterprise in marketing, underwriting, claims, distribution, IT, and customer- or agent-facing perspectives? What makes the company likeable? How do advertising and branding attract prospects to one carrier or another? With advanced analytics, planning for the future is an opportunity today.

Eye in the Sky: The New Vision of Underwriting

By Neil Spector

When combined with underwriting data, previous claims information, and other relevant data, ultra-high-resolution aerial images and automated image analysis will have significant impact on the insurance underwriting process. The first practical application of the technology in underwriting will likely be an alternative to on-site inspections.

Seeing the World through Analytical Eyes: Advances in Satellite Imagery Interpretation

By Dr. John Galantowicz and Dr. Arindam Samanta

Today's satellite constellation includes a variety of sensor technologies and operational modes, each of which has been optimized for a specific observational mission. Explore how advanced sensor data, novel imagery analysis algorithms, location intelligence, and GIS tools have been combined to provide analytics incorporated in industry practices today.

Predictive Modeling: Art or Science?

By John Ammendola

Calculating insurance pricing has always been a complex process — as much an art as a science. But advanced technology has afforded the industry an innovative tool in the form of predictive modeling. While not a perfect science, when leveraged effectively analytics goes a long way in setting accurate rates and managing risks that help companies like Grange compete in the marketplace. Here's a look at how Grange and other midsize and large insurers are upping the predictive ante.

Healthcare in America

A Conversation with Joel Portice

With the presidential elections now behind us, for all intents and purposes, the Affordable Care Act (ACA) is here to stay. What are some of the struggles and concerns healthcare will have to overcome, and what are some of the opportunities? With all the various healthcare-related data sources available, what is the key to pulling the disparate data sources together and creating more actionable data? What kinds of business challenges will both the property/casualty and healthcare industries face? To get some answers, Verisk Review interviewed Joel Portice, who recently became president of Verisk Health, on many of the major issues confronting the healthcare sector today.

How to Think about Black Swan Events

By Dr. Jayanta Guin

Some pundits believe the course of human history is shaped by unforeseen events, both positive and negative, whose probabilities are underestimated because they are too difficult to comprehend. Such events are called black swans and also exist in the realm of insurance risk management. Hurricane Andrew caused insured losses previously considered by many to be impossible. Since then, each successive large and unexpected catastrophe has prompted a reexamination of existing risk management practices. Because traditional statistical tools are not able to capture either the frequency or severity of black swan events, how should companies prepare for their impact?

Parrot Pricing: Is It Worth It?

By David Cummings

Many lagging insurers are trying to bridge the gap by parroting the rate structures of industry leaders. Insurers that parrot perceive it as a quick and easy way to improve competitive position — certainly cheaper than developing one's own pricing enhancements. But the significant costs and considerable business risks to adopting a rate-copying strategy may make doing so more costly in the end when perception doesn't equal the reality.

Planning for Insurance Product Changes

A Verisk Review Forum with Stephen Clarke and Ron Beiderman

To stay ahead in an increasingly competitive insurance industry requires constant change in product offerings and adaptation to technological innovations that increase the efficiency and accuracy of the underwriting and rating process. In turn, these product changes mean insurers must adapt — a process that typically generates many questions. In an effort to demystify the process, ISO's Stephen Clarke, assistant vice president, Commercial Property, and Ron Beiderman, assistant vice president, Commercial Casualty, answer some frequently asked questions from customers.

Analytics Capabilities to Level the Playing Field

By Chris Early

Since the mid-1990s, the number of personal lines auto insurers has dropped, and direct written premium for the personal lines auto insurance industry grew steadily until reaching a plateau in 2004. In the meantime, the number of insurable vehicles continued to grow, which has resulted in lower premiums per vehicle. In part, the lower premium per vehicle is due to safer vehicles and an aging population. But undoubtedly, other contributors to lower premium per vehicle include increased pricing segmentation, more accurate risk assessment, and less average pricing by the industry — all a result of the use of more sophisticated analytics. Here's what you need to know to succeed in an increasingly competitive market.

The Community, the Economy, and the Public Protection Classification Program

A Conversation with Robert L. Andrews

To some extent, the basics of firefighting have remained the same for years: respond to fires quickly and protect life and property. However, the tactics and technology are continually changing: pumps get bigger, water supplies get stronger, and communication improves. ISO's Public Protection Classification (PPC™) reflects those changes. Verisk Review recently spoke with Robert Andrews, vice president of Community Hazard Mitigation at ISO, who is responsible for countrywide implementation of ISO's PPC program.

The Road to Business Insights

By Phil Hatfield

There's quote data, sales data, policy administration data, billing data, reserving data, investment data, and claims data from internal systems. And outside sources can encompass government (census data, Federal Reserve data, Bureau of Labor Statistics data), weather patterns and history, credit data on both consumers and businesses, claims history, and market segments. Does your company use all that data? Does it make you smarter? If your company is like most, your answer is no. Consider some insights that can change an expensive no into a profit-driving yes.