Flood Risk & leveraging Location Intelligence

How Location Intelligence can help Insurers Mitigate their Exposure to Risk

After reeling through the second coldest winter in 16 years, spring couldn’t have come sooner for Canadians. However, according to an Environment Canada report, the abrupt temperature shift is anything but good news. With the winter snowpack melting rapidly, the weather agency has put everywhere from New Brunswick to Alberta under flood risk.

Springtime floods are not unusual in Canada. But typically, only one or two areas struggle with major flooding that results from swift snowmelt and excessive rainfall. This year, however, several parts of the country are at risk, including Quebec City, Ontario, New Brunswick, southern Manitoba, and Alberta.

The basic problem is that climate change has hit Canada especially hard. The country is warming twice as fast as the rest of the world. And these extreme weather events and warmer temperatures have experts convinced that an increase in flooding every year is going to become the norm.

Climate Change and the Insurance Industry

Flooding overtook house fires as the most expensive source of home insurance claims in Canada back in the 1990s. Over the 10-year period of 2003 to 2012 alone, urban flooding resulted in damage of more than $20 billion to the nation. But it wasn’t until the disastrous Calgary flood of 2013 that the insurance industry regrouped and some organizations started offering coverage for overland flooding in addition to standard sewer backups.

Now, as unpredictable costs from climate change-related disasters go up, a deeper rethink awaits the industry. No insurance provider, big or small, can afford to categorize a weather event as ‘once in a lifetime’. Neither can homeowner insurance as a product be called a reliable profit center for companies anymore.

To develop a sustainable financial management system for flood risk and to protect their bottom lines, insurance providers need to arm themselves with location-based information and data visualization technologies that are more accurate, up-to-date, and robust than ever.

Location Intelligence and Underwriting Processes

According to an analysis by the Canadian spending watchdog, the Office of Parliamentary Budget Officer (PBO), the total estimated annual economic loss to Canada from floods between 2016 and 2020 will be around $2.4 billion. So, it is only imperative that insurance companies empower their front-line underwriters to better understand the risks associated with individual addresses or even an entire portfolio.

Location intelligence solutions, such as DMTI’s Location Hub provide underwriters with exact geographic coordinates to every Canadian address with rooftop precision. This level of accuracy allows underwriters to quickly assess the multiple risk factors (geographic or manmade) that surround the property and rate the policy correctly.

The turnaround time decreases significantly because underwriters can now determine whether or not they want to assume the risk with data-driven confidence. Also, by segregating large datasets through postal codes and visualizing them on a map, underwriters can make sure they are not insuring too many properties within a high-risk zone.

Automating Workflows with Accurate Addresses

Accurate and up-to-date address data eliminates the need for manual property appraisal and allows companies to automate the underwriting process for mortgage insurance applications. Using a location intelligence platform such as DMTI Spatial’s Location Hub, insurance providers can undertake real-time flood risk analysis, portfolio accumulation risk analysis, as well as real-time visualization of the potential exposure to flood zones.

So, if a particular area is historically prone to floods, underwriters can designate a buffer zone around it and any application coming from that ‘catastrophe zone’ will automatically get rejected. Conversely, if a pre-validated location is entered into the automated mortgage insurance interface, the integrated location intelligence solution will generate the risk rating associated with that address, and if the property matches apre-defined level, the application will automatically get approved.

Establishing Risk Territories and Pricing Models

Accurate location information is also necessary for identifying new business, establishing risk territories, and developing fair and competitive pricing models. If risk managers want to know where they should expand their portfolio and determine what type of premiums to charge, they need to understand the risks associated with specific geographical areas and leverage that knowledge to fine-tune their pricing.

An intuitive, web-based location intelligence platform will allow underwriters to integrate multiple layers of risks, historical loss events, and claims on both individual properties and entire counties, thereby identifying actionable trends in risk exposure. If a particular area is under-exposed, underwriters can choose to become more aggressive with their premiums in that region and even dedicate marketing efforts there to garner in more business.

The Bottom Line

The demand for residential flood insurance products in Canada is only going to increase. According to a recent poll conducted by Insurance Bureau of Canada (IBC), 26% of Canadian homeowners don’t know if they have flood insurance coverage, while 29% are sure that they are not covered for flood risk. As floods become increasingly intense across the country, more and more Canadians will want to get their properties insured against flooding in the coming weeks.

Not only do insurance providers need to increase the speed and accuracy of their underwriting, but they also need to develop appropriate pricing models, match coverage, and expand markets – all while ensuring they are making profitable decisions in real-time. A comprehensive approach to location intelligence can help you to simplify this process simply by bringing all critical risk data into one common view and allowing for real-time, automated analysis of proposed policy vs flood zones.

DMTI Spatial, a member of the Digital Map Products Company, is the Canadian market leader in location-based information and data quality. To learn more about how we can help you understand your flood risks better, contact us here.

Additional Reading:

Mitigating Flood Risk with Location Intelligence