How Insurance (and Insureds) Can Weather the Storms

1 May 25, 2016 at 3:56 pm by

How Insurance (and Insureds) Can Weather the Storms“Conversation about the weather is the last refuge of the unimaginative.” – Oscar Wilde

Clearly, Mr. Wilde – expert as he was at crafting witticisms – never spent any time in an insurance office. Our industry has a longstanding history of imagining when rain, hail and other severe storms will occur, and just how to predict and minimize or prevent the damage they cause.  As a result, conversation about the weather has never been dull, and IBM’s purchase of The Weather Company in January only added fuel to the imaginative fire. Among the myriad benefits of incorporating the weather into IBM’s famous Watson artificial intelligence platform as well as the Internet of Things in general, IBM sees a great many applications specifically within the insurance space.

It may not be the stuff of Wilde’s drawing-room comedies, but weather is set to change the conversation in our industry in several important ways:

Customer Touch Points

Paying bills and filing claims are the two most common scenarios for consumers to interact with our industry. Consumers do not look forward to either of them, meaning we must identify other opportunities for frequent, value-added touch points. Where does the weather come into play?

With accurate, local weather forecasts, we can take an active role in communicating with policyholders before severe weather occurs, providing advice on protecting their assets to minimize or even prevent loss (e.g., informing customers of a hail storm and advising them to store their vehicle indoors). Follow-up communications could take place as well, checking in with customers who live in an area affected by severe weather to identify those who did experience a loss and proactively support them through the claims process. Weather data can even be used in social media analysis, tracking consumer posts during severe events to identify and address any concerns that could impact a company’s reputation.

With live weather data integrated directly into regular business operations, our industry’s role can evolve from reactive, merely indemnifying loss, to proactive, preventing it and working to resolve the claims that do occur as quickly as possible.

Claims Processing

Severe weather events often leave our industry in catch-up mode, deploying adjusters to an affected region only after loss has occurred. By leveraging weather data, we can ensure that additional resources are available in advance, significantly reducing the time required to investigate and adjust ensuing claims.

Rapid claims processing is not merely a benefit to customers – it also drives both revenue and retention. IBM cites a study from 2013 showing that policyholders who were compensated within one week reported satisfaction levels 18% higher and provided 12% more referrals than policyholders who waited longer.

Risk Management and Fraud Detection

While insurers will continue to rely on long-term forecasts to manage their financial assets, weather data can support short-term financing decisions to ensure adequate liquidity in advance of severe storms. Additionally, weather data can play a role in reducing fraud by verifying the weather conditions cited in claims (e.g., slippery vs. dry roads), and flagging suspicious claims for further investigation.

IBM’s involvement with The Weather Company is just one more indication of how real-time data, more of which is available every day through technologies such as telematics and wearable devices, is poised to transform every aspect of how our industry operates. The forecast is clear: cloudy with a 100% chance of change.

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1 Comment » for How Insurance (and Insureds) Can Weather the Storms
  1. Robert Muir says:

    IBM should consider buying The Hydrology Company, or The Hydraulics Company instead if it wants access to the real data that can predict severe weather damages. Why? Because there are a series of critical processes between rain and flooding that include runoff hydrology and infrastructure hydraulics – neglected processes that are rarely the topic of conversation in insurance companies or anywhere else, but which are all the rage around the water cooler in municipalities that manage flood remediation.

    IBM could help (re)crunch these numbers that show rainfall intensities have not increased in Canada for decades, per Environment Canada’s Engineering Climate Datasets (version 2.3):

    And the Hydrology and Hydraulics Co’s from IBM M&A could help investigate how design standard adaptation, and not storm chasing or cap and trade GHG mitigation, is really needed to address severe weather risks:

    Wilde is right … focusing on weather is unimaginative, and worse, it has lead to Kahneman’s lazy ‘System 1’ heuristic biases in problem solving:

    C’mon Big Blue, help us focus on facts. Talking about Weather is like dancing about Architecture.

    “People are not accustomed to thinking hard, and are often content to trust a plausible judgment that comes to mind.”

    Daniel Kahneman, American Economic Review 93 (5) December 2003, p. 1450 …. I really think he was talking about the weather.

    Rob M

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