There was nothing matter-of-fact about the devastating wildfires that tore through southern California last month. At press time (when there still were fires burning) it was estimated that insurers could end up paying at least $1.5 billion in claims for wind and fire damage to homes, businesses and vehicles. But ironically, what did seem almost matter-of-fact to me was the role technology is playing in the industry's claims response to the fires. Technology has completely transformed the catastrophe claims process to such an extent that leading edge has become routine, albeit in a pull-out-all-the-stops kind of way.
It was not so long ago that it was remarkable and newsworthy for carriers to have the ability to deploy mobile claims facilities/vehicles that can adjust claims and issue checks on the spot, or to quickly route affected customers' calls to specially designated call centers. Now, not only do most P&C insurance companies offer these kinds of capabilities, you almost couldn't be in the homeowners' insurance business without them. That's not to say it is mundane or to be taken for granted. Rather, it's another example of how quickly technology advantage becomes best practice and then core competency.
But while technology's power is welcomed by the public, politicians and the media in terms of catastrophe claims response, it's not always so appreciated when it comes to how insurers deploy it to forecast, analyze and underwrite risks. Analytics, modeling tools, GPS and content management are among the technologies insurers are using to do a much more precise job of understanding and underwriting risk. Of course, this translates into higher rates, departures from risky markets and other actions that make sense for carriers financially but are unpopular at best and, at worst, financially harmful to individuals and businesses seeking coverage.
In a new study focusing on flood risk in the U.K. market, John Maitz, VP for CSC's Financial Services Sector in Europe, the Middle East and Africa, notes: "With margins under severe pressure, pricing more precisely for risk represents the principal strategy whereby [insurers] can hold on to market share without seeing their profitability diminish to an unacceptably low level. For households on flood plains, these developments augur very poorly indeed." For better or for worse, technology is putting insurers into a perhaps inevitable "good cop, bad cop" situation.
Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio