In its latest report, InsTech London discusses how location intelligence might benefit the insurance industry and how some firms are already tapping into it 

With the frequency of extreme weather and secondary perils - such as hail, flood and storms - increasing, better use of location intelligence could help reduce costs to the insurance industry, according to InsTech London.

Its newest report, Location Intelligence 2021 – the Companies to Watch: Where, What and How Risky?, published today (1 April 2021), stated that the expense for extreme weather and secondary perils amounted to around $60bn in 2020.

However, the body believes that location intelligence could help mitigate these costs.

Location intelligence is the process of obtaining meaningful insight from geospatial data relationships to solve a certain problem.

Based on over 300 interviews, the report revealed how insurers can use this data to underwrite and manage exposure to property risks more effectively.

Matthew Grant, partner of InsTech London, said: “I’m enthusiastic about the opportunities available for insurers to have access to better risk tools, for entrepreneurs to build new companies and established corporations to find new customers for their insights.

“But new is not always better. Innovation is happening at companies that have been providing location intelligence for decades.”

Secondary perils

Swiss Re estimated that around 70% of the losses from natural catastrophes in 2020 came from secondary perils, such as tornadoes, flood, hail and wildfires.

However, until recently, the industry has lacked the tools to model short-term risks accurately, even for common events like hurricanes.

Accoring to InsTech London’s report, new era of boutique firms have emerged to provide insurers with specialist tools to achieve a better understanding of properties and the specific perils they face off the back of increasing climate change risks. 

Grant added: “Insurers now have a huge amount of choice of technology to help them make money, save money or satisfy regulators. But even the best technology is useless if we don’t know what it is we are insuring, where it is, what it’s made of and what might cause it to break.

”Up until about 30 years ago, insurers were using location information that hadn’t improved much for over 100 years and no one really seemed too bothered.

“Then, in 1989, a major windstorm hit the UK. Hurricane Andrew, a category five storm, made landfall in Florida in August 1992. Two years later, in 1994, the Northridge earthquake caused $12bn of insured losses in Los Angeles.”

How is it used?

The report looked at how firms are using location intelligence to support insurers. This includes the acquisition and interpretation of:

  • Aerial imagery, such as the satellites, aircrafts and drones.
  • On the ground imagery, such as photos from mobile devices, video or static images sourced via the policyholder or third parties.
  • Other people’s records, for example data sourced from third parties that is now available to insurers. This includes government data or companies operating outside of insurance, such as online portals listing properties for sale.
  • Geocoding, which involves the allocation of the exact location coordinates, usually latitude or longitude, for a property.
  • Construction and usage, which refers to what the property is made of, its exterior and interior finish, size, height and the use of the property.
  • Rebuild cost, which is also known as reinstatement cost, or Insurance to Value (ITV). This is the cost to repair or replace the building and is different from the commercial or sale value of the building.
  • Hazards, such as natural or man-made factors in the external environment that could damage or destroy the building. Most commonly these are fire, wind, hurricane, flood, hail or soil failure. Less common drivers of major insurance loss that are just as destructive include earthquakes and tsunamis.
  • Portals and aggregators of data and platforms used by companies that bring together third-party data sources and provide these to insurers and other companies for analytical purposes. The companies providing these portals may offer some validation and processing of the data, which is usually available via an application programme interface (API).
  • Remote claims assessment, which involves technology and data enabling insurers to assess physical damage without visiting the property. Remote claims assessment and settlement, when linked to an index, is one of the drivers in the growth of interest in parametric insurance.

Who is using it?

The report identified around 60 new companies that are offering niche products to enhance location intelligence - these businesses have emerged in the last few years.

These companies include 360Globalnet, Shepherd, Previsico, JBA, Arturo, Concirrus, Flyreel, RMS, Skyline Partners and WhenFresh. 

For example, Ecclesiastical, which is working with property performance management firm Shepherd to provide monitoring for historic buildings such as Kenwood House in London. AXA XL and Liberty Mutual are also exploring ways of using sensors to identify problems on constructions sites.

The report highlighted the top eight drivers impacting the interest and use of location intelligence data within insurance. This includes:

• Remote working.

• The changing shape of catastrophe losses.

• Climate change awareness, regulation and environmental, social and governance (ESG) factors.

• Initial Public Offerings (IPO), funding and mega-startups.

Parametric insurance.

• On-demand satellites and “drones as a service”.

• Emergence of platforms.

• Data standards.