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Deena M. Amato-McCoy
Deena M. Amato-McCoy
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Storm Surge

To prepare for the next hurricane season, insurers are working to improve the accuracy of risk modeling tools while arming field personnel with mobile devices to navigate the devastation, and beefing up call center and network technologies to handle expected surges in activity.

Seven months after Hurricane Katrina, many Gulf Coast residents and business operators still are displaced. Not surprisingly, many of these victims are looking to their insurance carriers to help them weather the proverbial storm, and insured losses from Hurricane Katrina likely will top out between $40 billion and $60 billion, according to RMS, a Newark, Calif.-based provider of predictive and analytical risk management solutions. Like many of their policyholders, however, some insurance companies were unprepared for the magnitude of the 2005 hurricane season and the destruction wrought by Katrina and Rita. >>

Refusing to be caught off guard again, insurance companies are reexamining their IT strategies and operations in anticipation of the fast-approaching 2006 hurricane season. While carriers feverishly are working to improve the accuracy of predictive analysis tools, companies also are adding mobile devices and network security to their IT priority lists to prepare for the next storm.

"Meteorologists are projecting that the severity of these storms will be an ongoing pattern this year and in the future," says Misty Crawford, enterprise program manager for El Segundo, Calif.-based Computer Sciences Corp. (CSC). "With the 2006 hurricane season less than four months away, insurance companies are focusing on their IT strategies from all angles."

Predicting the Future

As the 2006 hurricane season draws near, carriers are looking to boost the performance of their predictive modeling tools by ensuring that their data sources are clean, accurate and accessible. This is even more important as widely used catastrophe risk models came under fire following the devastating 2005 hurricanes.

Following perceived failures of risk models, some insurers accused modeling tools of delivering outdated and ineffective potential loss predictions. Meanwhile, technology providers' rebuttal was that accurate data produces accurate results.

To avoid similar pitfalls in the future, experts are urging insurance companies to regard risk models only as input in their decision-making processes, "rather than their predicted outcome," according to Michael Costonis, managing director, North America & Asia-Pacific, insurance claims solution group, Accenture (Chicago). "[The solutions] represent solid thinking on a potential path and impact for the catastrophe," he says. "However, the insurer must contingency-plan around that and continually probe around the edges of the models."

Taking such advice to heart, many insurance companies are reevaluating the data that supports their operations. "Companies need to look at their data warehouses and interfacing systems and ensure that they are populated correctly," asserts Mark Vanston, senior advisor, business continuity and enterprise risk strategies, for Palo Alto, Calif.-based Hewlett-Packard (HP). "Clean, accurate data will provide more-precise statistics and analysis."

With more-accurate predictive analysis, "Companies can nail down losses with a 90 percent accuracy for each storm," contends Robert Schwartz, industry principal, SAP (Newtown Square, Pa.). "Predictive modeling can reveal the penetration of an event in a specific area, the amount of catastrophe loss in a given area and what the potential cost could be."

Equally important, insurers also can drill down to identify their resource streams, ensuring that they can deploy the right number of adjusters in the right places at the right time. "Many insurance companies took a hit because they did not know the impact of the approaching storms," CSC's Crawford says. "They did not realize the level of the storm that was approaching because they did not have the correct infrastructure in place," she adds. "By using more-robust analytics, carriers can efficiently get adjusters to the right location in an efficient manner and service the policyholders. Katrina and Rita just reinforced the importance of these predictions."

Once the storms passed, insurers quickly learned how well prepared -- or ill prepared -- they were to begin servicing their displaced customers. "While we made preparations to handle storm claims, we were not prepared for so many claims from one location," says Mickey Nugent, vice president of operations for Jackson, Miss.-based Southern Farm Bureau Casualty Insurance ($2.4 billion in total assets), of the aftermath of Hurricane Katrina.

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