Wednesday, May 11, 2016

Understanding RISK - Do you know why you pay higher insurance?

Why would an image such the above hurricane which hit Florida be of interest to you? Hurricane Irene caused the US damages worth $15.6 billion (2011 US $). If you work in the insurance industry you can already see how important getting the right policies for specific locations are, linking it back to the previous post about LOCATION, you are able to find out the total insured value (TIV) of specific policies by region using the ANALYSIS OF POLICYHOLDERS' LOCATIONS.

Image 1
Through this analysis, you are able to come up with a map similar to Image 1 on the left. The higher the TIV, the bigger the circle on the map symbology. Using this you may have identified that there are more policyholders located in metropolitan areas such as Miami to the bottom right hand side of the image. TIV also seems to be higher near coastlines. Using a heat map you can further identify that in reality, the circle representation does show a higher TIV in the Miami region due to denser concentration of properties.
Image 2

The buffer analysis in Image 2 shows the high probability of damage areas from hurricane information NOAA records hurricane patterns ct dating back to 1851. This can help you forecast future insurance claims if a hurricane hits a specific location. But this data alone does not help. 

Image 3
Moreover, imagine that you have identified the areas of Florida that are inside storm-surge, we can now identify our customers that are classed as high-risk in Image 3. It will allow the company to come up with insurance premiums that are fair and respect your customers, but also keeping the business questions in mind regarding their potential risks and future insurance claims. By using this information you can add a higher premium rate for these areas, ensuring that your organisation will keep risk management as effective as possible, and ensuring that every customer gets an equal treatment if they are located in the same region.

I hope you can see the usefulness of this in order to ensure that your business is not going to experience a fall in profits, revenue, market share, consumer confidence and an increase in running costs. Risk impacts can be avoided, mitigated, transferred or accepted. My example from a case study exercise, focused on mitigation and transfer (by making policy holders pay higher premiums, the risk of future claims is attributed to them), through the example of the insurance company.

Hope you had found this helpful. Please share to show your peers in order to get more people interested in GIS application to businesses. Happy learning!

Images Copyright belongs to ESRI. 

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