Why Are Insurance Underwriters Turning to GIS?

With the integration of technology in the insurance sector, there has been a significant increase in the ease of assessment, processing, and disbursement, mainly due to the modernization of services. Previously, calculating premiums, conducting risk assessments, and implementing measures for insurance policies, especially in property insurance, was a manual task. However, this has changed with the introduction of advanced digital software and systems like Geographic Information System(GIS), making the work much more streamlined and convenient. As a result, insurance underwriters are turning to GIS for advanced insights and validated data while making important decisions.

A Brief Introduction to Underwriting

Underwriting is the process that insurance companies use to calculate the price risk. By calculating the likelihood of potential risk or damage, underwriting helps to decide how much coverage the policyholder is eligible to receive. This also determines the premium amount that is to be paid by the insurance holder.

Underwriting is essential to build insurance pricing models that are fair to the provider as well as the holder. With the help of accurate, location-based data, it has become possible to check if the property is in a safe zone in case of a natural hazard and measure and manage risks effectively. In the case of property insurance, the insurance underwriter will most likely examine the risk associated with your property. If the property falls in an earthquake zone, is ill-equipped to withstand natural hazards, or possesses a significant risk to residents by not complying with government regulations, the coverage amount will be reduced, or may even be denied.

Underwriting During Cyclonic Calamities

Natural hazards include various catastrophic events such as floods, rains, tsunami, earthquakes, wildfires, or cyclones. Traditionally, insurance companies felt that any such catastrophic perils would result in complete and utter losses and hence had generalized premiums for all clients, irrespective of their potential risk impact.

History tells us that in the 1900s, underwriters in London would specifically mention the risks on a slip of paper provided by the insurance broker. This was mostly done before the insured embarked on a lengthy sea voyage, without even knowing the likelihood of a cyclone, nor the risk it possessed in that specific location. 

Since then, insurance companies have progressed to the 21st century, and have made significant developments in this field along the way. They have accumulated a lot of claims-related experience, as well as technical knowledge about infrastructure and engineering. Over the years, insurance providers have settled several insurance claims caused due to natural calamities. Yet, most of these are based on global weather patterns that remained unchanged for years, as opposed to hard, solid data.

Today, with the changing climate scenarios, the need to examine the potential risk of cyclonic calamities with respect to an asset has become important. A good example is the most recent natural calamity experienced – the cyclone Tauktae. As the Indian coastline suffered significant infrastructure damages due to the longest traveling cyclone, underwriters have realized the importance of analyzing this risk in advance.

That’s where GIS can play an important role. As Mr. Shreenivas Kulkarni, Expert Risk Management & Insurance Consultant at Unity Geospatial precisely states;

“Tropical Cyclones are catastrophic hazards damaging a large area of about 200 kilometers or more.Here, the threat is an external one and comes from outside and hits the assets covered by Insurance companies. The threat or hazard therefore are location specific and the intensity and frequency of the Tropical Cyclones may vary substantially from location to location. This calls for understanding the threat at the location and appropriate remedies for meeting the threat at the location. If this is not understood in the right perspective, the cost of premuim and loss prevention efforts such as building structures that may stand fury of the Tropical cyclone may not be cost effective. The losses can be so high that they may affect the Insurance Companies financial stability as the past history of damages indicate.”

GIS as a Helping Hand for Insurance Underwriters

A Geographic Information System (GIS) is used to track, collect, and analyze all types of tropical cyclone data in huge quantities.

Property insurance claims are largely location-specific. As GIS can forecast natural calamities, it can be of great help to insurance underwriters.

While explaining the potential of GIS Technology, Dr. Shrikant Gabale, Director at Unity Geospatial and a GIS expert states;

“Under remote sensing technologies with the help of satellites, it has become possible for us to monitor our planet and gain critical information pertaining to the topography and climate data. GIS uses its vast database and mathematical algorithms to analyze spatial locations and portrays the output in visual data.”

Insurance companies need to know the potential impact of location-based risks, such as floods, earthquakes, cyclones, and hurricanes. Since GIS accurately predicts these risks, underwriters can make decisions faster.

In addition, during calamities like hurricanes and cyclones, time is of the utmost importance. Since GIS accurately delivers real-time data, tracks tidal surges, calculates the intensity of impact, and maps the routes the cyclone might travel through, it can help underwriters assess the potential destruction of the property with near-perfect accuracy.

A property in an area with a higher risk of a cyclone will have a higher premium than one in an area at a lower risk. In addition, with location risk assessment, GIS technology also helps underwriters foresee the costs and logistics of claim handling, which can be factored into the premium. Based on big data analysis, GIS also helps in figuring out the Maximum Probable Losses (MPL), the potential coverage amount, cost, and even the likelihood of whether the client is eligible for the insurance or not. This is especially helpful for clients in the coastal area. Since the loss can be estimated beforehand, it helps underwriters make informed decisions.

TROPCYC: More than just a GIS-Based Software

TROPCYC is a risk assessment software measuring the impact of tropical cyclones. The frequency of cyclonic events has increased in the Indian subcontinent in the last decade with severe cyclonic storms hitting our coastline. As a result, the need for GIS-based tools for loss assessment due to cyclones has also increased.

Developed by Unity Geospatial, TROPCYC offers an accurate predictive assessment of tropical cyclones likely to occur in the next ten years, based on GIS, historical data, and analysis of the Indian Meteorological Department (IMD) reports. TROPCYC identifies whether an asset location falls under a hazardous zone with high tropical risk.

It includes suggestions that help minimize losses to new structures, measures to strengthen existing structures, and detailed risk assessments and plans to counter location-specific disasters.

TROPCYC Risk Assessment Report

TROPCYC provides a detailed risk assessment report which is created as per the latitude and longitude of the asset in question. It includes the history of weather disturbances and past tropical cyclone hazards in the area and the potential probability of the occurrence of a cyclone within the next 10 years.

Additionally, TROPCYC also focuses on the vulnerabilities of the area which includes a detailed summary of structure, well-engineered structure, asymmetrical and heavy structures, buildings under construction, etc. It also mentions the potential service disruptions and the availability of local support.

In addition to the above, a few other important vulnerabilities are emphasized in the TROPCYC risk assessment report. These include,

Wind Speed – Since wind disturbances are natural during a cyclonic event, TROPCYC provides a report on wind speeds, their intensity, frequency in the area, and the potential damages due to maximum wind speeds.

Flash Flood – Tropical cyclones cause heavy downpours which lead to the accumulation of water in coastal regions in large quantities. In locations that are at risk of flash floods, TROPCYC gives a detailed report on the velocity, depth, and duration of the flood. Additionally, it also assesses the damages that a flash flood can cause.

Storm Surge – In areas that are at risk of storms, there can be an abnormal rise in water generated due to tides in a storm. A storm surge is caused due to water being forced off to the shore. Accumulation of this water coupled with strong winds can cause significant damages, which is factored in the risk assessment report.

At its crux, TROPCYC aims to create a Risk Assessment Report with estimated Maximum Probable Loss (MPL). The MPL Estimates can aid insurance underwriters in predicting Tropical Cyclones for the next 10 years along with their intensities. This will help underwriters accurately consider all the location-specific data for potential policy buyers.

Endnote

Since India has a long coastline of 7516.5 kilometers, it is more prone to cyclones and other calamities. Consequently, underwriters have to factor in the risk impact of these calamities, while authorizing insurance premiums.

GIS-based software, such as TROPCYC can be instrumental in helping insurance underwriters assess the impact of such catastrophic events and providing reliable and practical information related to potential risks and preventive measures. It also helps insurance companies safeguard their client’s interests and assets.

To know more about the TROPCYC software, visit us at https://unitygeospatial.com/ tropcyc/, or write to us at contact.tropcyc@unitygeospatial.com.

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