Milliman today announced the launch of Milliman PinPoint, an innovative insurtech software solution that enables insurers to cost-effectively evaluate, price, and market residential property and flood products through location-level geospatial information that is customizable for each unique user.
Insurers are looking for ways to take advantage of geographic information systems (GIS) technology and apply it to better understand their current and future customers. PinPoint offers a way for insurers to zero in on a property’s risk, and can be especially valuable for companies thinking of entering new markets such as private flood or adopting more granular rating strategies in their existing markets.
For example, Milliman PinPoint has already
been implemented by the North Carolina Rate Bureau (NCRB), which is using the
insurtech solution for members who wish to offer admitted private flood
insurance in the state.
“PinPoint provides a rating solution for
insurance companies that can be readily adopted without spending IT resources
and significant up-front costs,” says Andy Montano, Personal Lines Director at
the NCRB. “PinPoint is an important option we offer our member companies,
making it easy to implement the recently-approved NCRB flood program.”
Using a simple application program interface
(API), PinPoint delivers data and insights to customer systems at the point of
decision. It provides a level of granularity not frequently seen in insurance products,
including distance calculations (such as distance to coast), elevation
statistics (such as elevation relative to surrounding areas), and market data (such
as Census information or competitor premiums). The API also provides company-specific
rating algorithms, delivering premium calculations and customizable rating
territories across all 50 states. This can be especially valuable for insurers
and managing general agents (MGAs) looking to quickly and efficiently launch
new products in emerging markets, such as private flood in the U.S. Since
PinPoint is built and implemented by Milliman’s property insurance experts, it
is tailor made to fit specific business objectives, giving clients quick time
to market in addition to the full customization they need.
Flood is one of the most devastating catastrophic perils, in which a single event can create tens of billions of dollars of loss. It is also one of the least insured perils, affecting people in every part of the United States. Advanced risk models now provide granularity, assessing flood risk at local levels. Such technological development presents insurers the opportunity to offer affordable, risk-based coverage within a private insurance market. Milliman colleagues Nancy Watkins, Matt Chamberlain, Andrei Stoica, and Garrett Bradford offer perspective in this video.
To learn more about Milliman’s flood expertise, click here.
Advances in catastrophe models and new state insurance regulations have opened the door for an affordable, risk-based private insurance market in Florida. This reading list highlights articles focusing on various issues and implications related to the market. The articles feature Milliman consultants Nancy Watkins and Matt Chamberlain, whose knowledge and experience is helping insurers to understand and price flood risk more precisely.
Nancy Watkins, a principal consulting actuary for Milliman, likened the current level of interest from insurers to enter the private flood insurance market to popcorn.
“We are at that stage where you can hear the space between pops. You can hear one kernel at a time,” she said. “What I think is going to happen is, in one to two years, there’s going to be a lot more going on.”
• Bradenton Herald: “Important for homeowners to compare flood insurance options”
Florida homeowners must consider the issues related to the National Flood Insurance Program (NFIP) and private flood policies. Private insurers can use predictive modeling technology to determine a home’s distinct flood risk.
Insurers have been cautious about reentering the homeowners flood insurance market, which is due to high risks related to floods. In his Best Review’s article “High water mark,” Milliman’s Matt Chamberlain discusses the reasons behind the industry’s trepidation. He also provides perspective on how geographic information systems (GIS) can help insurers develop granular rating plans. Here is an excerpt:
There are several reasons why flood has been considered an uninsurable risk. First, flood is a localized peril; a distance of a few hundred feet, or less, can make a large difference in risk. This produces an information asymmetry, because the insured has a clear understanding of the local topography, while the insurer does not. The insured knows how far the house is from water, and whether it is on the top of a hill or if it is in a depression.
Insurers, on the other hand, typically use large rating territories for homeowners insurance, in some cases larger than a county. If these territories were to be used for flood insurance, it would create the potential for adverse selection. Insureds that were at highest risk of a flood would be most likely to want the coverage, and if insurance companies do not have a means of distinguishing higher-risk from lower-risk policies, anti-selection would result….
Geographic Information Systems, when coupled with the new flood catastrophe models to provide a very granular rating plan, may help insurance companies overcome these risks. Territories can be based on “hydrological units,” or watersheds, so that areas that water is not likely to flow between are not grouped together. Within a territory, appropriate rating factors are distance-to-coast (relating to storm surge risk), distance-to-river/stream (relating to river flood risk), and elevation (because all else being equal, there is lower flood risk at higher elevations).
Using all of these rating factors produces a rating plan that is able to distinguish different levels of risk even among points that are near each other. This produces true risk-based pricing that is likely to be sustainable in the long run. The top map at right shows this approach and compares it to the traditional method of rating flood insurance used by the NFIP, shown at bottom.
The video below presents an example of how GIS can improve pricing strategy.
Determining a “coastline” is not as easy as some would think. The following excerpt from an Insight article by Matt Chamberlain discusses the challenge of defining a coastline:
Although it may seem like defining the “coastline” is clear-cut, it is actually quite ambiguous when considering a property’s exposure to a hurricane. Does the coastline follow bays, such as Tampa Bay? Does it follow barrier islands? Does it follow rivers and, if so, how far?
After a company decides that it should organize its territories based on distance to the coast, that company’s first instinct may be to use an existing coastline. However, such a coastline may not be suitable for the purpose. Off-the-shelf coastlines, such as the one in the map in Figure 4, may follow many small-scale features that do not, in fact, affect hurricane risk.4 The coastline in Figure 4 even follows inland features, such as Lake Okeechobee. A considerable amount of preprocessing work is required to create a coastline that matches the expectation of risk. It is even possible that different coastlines could be used for different purposes.
Different hurricane model vendors may have designed their models using different coastlines. If a company wants to calibrate its rating structure to a particular hurricane model, it should use a coastline that matches its preferred model vendor’s interpretation. If the company wants to understand the relationship between risk and storm surge, it makes sense to use a coastline that captures the more finely detailed features that are relevant to storm surge risk. If the company is concerned about wind risk, it makes sense to use a coarser coastline that more closely corresponds to the hurricane peril.
Once a coastline is defined, an insurance company can begin geocoding territories to rate policies. Chamberlain outlines the process of geocoding in this excerpt:
In order to rate a policy, it must be “geocoded.” This requires the location’s address to be entered into a “geocoder,” which returns the location’s latitude and longitude. A geographic information system (GIS) program can use that latitude and longitude to determine which territory it is in. This provides the ability to determine the risk at a location much more precisely. Instead of rating the location based on the average risk in a territory, which in turn is based on counties or ZIP codes, this method allows the company to estimate the risk for that specific location. In practice, a company may still choose to create territories that group together similar risks, but the territories can be made as small as necessary, ensuring that each one is homogeneous.
To read Matt Chamberlain’s article on geocoding hurricane risk in Florida, click here.
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