Loss Costs

$322 $364 $365 $388 $389 $411 $412 $437 $438 $468 $469 $506 $507 $553 $554 $652 $653 $834 $835 $1,187

Profit from our information

OnLocation
Issue 13 | Spring 2012

ISO Risk Analyzer produces loss cost estimates by coverage for each census block group, enabling more precise risk-based pricing. In the territory pictured above, loss costs range from $469 to $987 per policy per year across 23 ZIP codes. With ISO Risk Analyzer, you can base your pricing on that detailed breakdown, not just on the territorys average loss cost estimate of $715.

ISO Risk Analyzer Personal Auto is now inside LOCATION

The most sophisticated geographic analytics in the industry joins the most widely used geographic information system for insurers

Over the past 20 years, the personal auto insurance industry has witnessed a decline in the number of insurers in the market. During that same period, only a handful have continually increased their market share. With the industry experiencing stagnant premiums and aggressive competition, many insurers are investing in the latest technology, including sophisticated GIS and predictive analytics models. Their goal: grow profitably, improve loss ratios, and reduce expenses. The way to achieve that goal: ISO Risk Analyzer a risk rating tool that enables improved risk-based pricing and, ultimately, better underwriting decisions. Developed by ISO Innovative Analytics, ISO Risk Analyzer uses predictive modeling to examine hundreds of indicators that predict expected losses at the garaging address. Examples of auto data include loss costs for bodily injury, property damage, collision, comprehensive, and PIP coverages, with geographic information down to the census block group level.
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ISO Risk Analyzer

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Segmentation Precision Options Territories within Minnesota

Territories: 54 Least precise risk measurement

ZIP Codes: 961 Using ISO Risk Analyzer Medium precision risk measurement

Census Block Groups: 4,079 Using ISO Risk Analyzer Most precise risk measurement

You can incorporate ISO Risk Analyzer outputs into rating plans based on census block groups or ZIP codes, depending on the flexibility in the current rating plan. You can see how census block groups give you the most precise risk measurement.

ISO Risk Analyzer Personal Auto is now available as part of the LOCATION suite of services, combining the most sophisticated geographic analytics in the industry with the most widely used GIS for insurers.
Why ISO Risk Analyzer?

To satisfy customer demand, we selected ISO Risk Analyzer as the next LOCATION layer. When compared with insurers in-house models, ISO Risk Analyzer with its robust model has consistently outperformed the competition by providing more precise loss cost estimates. ISO Risk Analyzer provides a territory-based segmentation layer developed from:  ISO loss costs and other information from our databases, which consist of data from approximately one-third of the personal auto market  select development partner data representing the personal auto market  third-party data known to correlate to losses, such as effects of population density and commuting patterns, traffic composition of other drivers on the road, and three decades of weather station data

In addition to loss cost estimates, ISO Risk Analyzer customers also receive the following output: Traffic generators including characteristics such as transpor tation hubs, shopping centers, hospitals/medical centers, and entertainment districts Traffic density including characteristics such as commuting patterns and public transportation use Traffic composition including characteristics such as household size and home ownership Weather including measures of snowfall, rainfall, temperature, and terrain Experience/trend including ISO loss costs and state frequency and severity trends from ISO lost cost analyses And insurers get the added benefit of speed to market by adopting ISO Risk Analyzer through the LOCATION delivery platform.

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Why LOCATION?

Current and new LOCATION customers can take advantage of the same internal processes to receive the new personal auto data for each garaging address in their portfolio. Instead of mapping addresses by census block group, customers using LOCATION receive the bene fits of address-level data resulting in quicker implementation time and lower implementation costs.
A powerful combination

talented teams and the necessary skills to build predictive models may find theyre overwhelmed with multiple corporate objectives. And the software and hardware needed to build the models are highly specialized and expensive. Taken together, those factors put a competitive predictive model out of reach as an internal analytics goal for most insurers. As a result, many insurers today are outsourcing and/or redirecting their loss cost analytics to the predictive capabilities of ISO Risk Analyzer. LOCATION customers now have an opportunity to maximize their ease of delivery and implementation through the well-known and tested LOCATION interface. Look for an update about ISO Risk Analyzer homeowners data in LOCATION later in 2012. For more information on ISO Risk Analyzer and LOCATION, send e-mail to [email protected]. L

The combination of ISO Risk Analyzer and LOCATION can help insurers make profitable business decisions. Using territory-based segmentation, insurers can now identify their customers with risks lower or higher than estimated. For customers with risks lower than previously estimated, insurers can lower pricing to attract new business and improve retention. For customers with risks higher than previously estimated, insurers can price policies more intelligently and balance price increases with overall book risk. The majority of insurers today dont have the data volume necessary to build optimal models, while others may not have the in-house expertise required to undertake such an initiative. Even insurers with

Still receiving LOCATION data on CDs?

Six reasons to switch to secure electronic transfer
Flexible delivery methods give you access to LOCATION services when and where you need them. You can choose your preferred method depending on your business operations, systems environment, and requirements. Many of our customers receive LOCATION data on CDs. But perhaps its time you considered switching to secure electronic transfer. That delivery method offers a number of advantages:  Security Youll receive the data using secure electronic transfer instead of a traditional CD sent by mail. Only your companys authorized personnel have access to our secure website where the data resides. Speed Youll receive LOCATION data a few days earlier in the month. The data becomes available as soon as we approve it. No need to wait for us to burn the CD and receive it in the mail. Reliability Since we transmit the data electronically, there are no CDs to break or mail shipments to get lost.  Eco-friendly The electronic data transmission is paperless and ensures that theres little impact on the environment. Youre saving trees (no more mail packages) and preventing landfills from accumulating unnecessary disks containing plastics and aluminum. Automation You can fully automate the transfer process with a  secured account created for you on our server, where you can download the needed data at the same time each month without manual intervention. No more trips to the mailroom, opening packages, and waiting for CDs to load.  Financial savings Many states dont impose a sales tax on digital products delivered electronically. You can potentially save significant sums by switching to electronic data delivery. Please talk to your tax department to see if that advantage applies to your company. While LOCATION services are available through a variety of delivery options, hosted at your location or ours, we strongly recommend that you give secure electronic transfer a closer look. Youll receive the data faster and in a more secure manner. And you may save money along the way. Please contact your LOCATION project manager for more information or to initiate the process of replacing CDs with electronic data transfer. L

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LOCATION Analyst helps you target claim activity and catastrophes that affect your portfolio
What-if scenarios: The first map and report show an actual hail event and the total claims count and average and total loss amounts that occurred in the portfolio. The second map shows the same event in a new location. The system generates a what-if report of the estimated number of claims, total estimated claim amount, and total estimated claim amount paid.

Loss Ratio Summary Report

For Study Area: Claim Study Area One Book of Claims: Homeowner Claims Period: 01-01-2011 to 12-31-2011

Book of Business: Homeowners Policies Claim Type: Hail, Weather, Wind

Total Premium Collected vs. Total Claim Amount

Loss Ratio: 2.9% Total Properties Count: Total Premium Amount: Average Premium Amount: Average Deductible Amount: 136 $74,949.00 $551.00 $250.00

64.00%

36.00%

Total Claims Count: 4 Total Loss Amount: $42,150 Average Loss Amount: $10,537

A key consideration for insurers is planning for catastrophes and how they affect their portfolios. Catastrophes can be devastating to people and property and costly to insurers and those affected. In 2011, ISOs Property Claim Services (PCS) declared 30 catastrophes in the United States. The catastrophes caused more than $32 billion of insured property damage and resulted in more than 4.8 million claims. Verisk Insurance Solutions is pleased to announce that LOCATION Analyst our spatial risk management tool that uses geographic information system (GIS) technology to explore and analyze books of business has new features to help you manage catastrophes and their effect on claim losses, insured properties, and coverage exposures. Weve also developed new functionality to help you further analyze claims history.
Historical claims activity

claims data from Verisks A-PLUS (Automobile-Property Loss Underwriting Service). The A-PLUS database includes property claims data from more than 1,460 insurance companies, representing more than 95 percent of the industrys premium volume. LOCATION Analyst interfaces directly with A-PLUS data, easily providing geo spatial maps of your loss experience with up to seven years of claims history. You can profile and quantify losses by year, claim amount, claim status, and loss type. You can also observe relationships and patterns as they relate to geography, historical natural catastrophes, and current books of business.
What-if scenarios

LOCATION Analyst can now use insurers claim experience to help visualize where claim losses are occurring and shed light on the relationship between those losses and insurers portfolios. We use

LOCATION Analyst has several new reports that analyze catastrophic events and their effect on claim losses:  The Loss Analysis Report shows claims by loss type for a date range you specify. You can also visualize the losses on a map.  For an insurer-specified area of a catastrophic event, the Loss Ratio Summary Report shows collected premiums relative to the amount

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Real-time event monitoring: The map shows real-time monitoring of hurricane warnings and which policies are at risk in the book of business. The properties within the path of the event (red) are at risk; the properties outside the path (blue) are safer.

Loss Ratio Summary Report

For Study Area: Claim Study Area Two Period: 01-01-2011 to 12-31-2011

Book of Business: Homeowners Policies Claim Type: Hail, Weather , Wind

Total Premium Collected vs. Total Estimated Claim Amount

Loss Ratio: 2.9% Total Properties Count: Total Premium Amount: Average Premium Amount: Average Deductible Amount: 513 $286,686.00 $559.00 $250.00

64.46%

35.54%

Estimated Number of Claims: 15 Total Estimated Claim Amount: $158,061 Total Estimated Claim Amount Paid: $154,311

Risk concentration mapping: The blue areas represent concentration by coverage exposure. The light brown areas represent concentration weighted by risk. Using the overlap in the middle containing properties with higher concentrations of both risk and coverage exposure lets you isolate areas quickly for further analysis and mitigation planning.

of loss experienced in that area. You can also create new scenarios in which you can move the same event to other geographic locations and then analyze your book of business to estimate the amount of loss if that catastrophe had taken a different path or affected a different area in your portfolio. That functionality can help you with cash reserve planning and analysis.
Real-time event monitoring

Using this new feature, you can formulate a response plan that will better prepare you for claim and adjuster activities.
Risk concentration mapping

LOCATION Analyst makes it easy for you to monitor real-time catastrophic events and see how they affect properties in selected areas. You choose the event type you want to monitor, and the system displays that information on a map along with your insured properties. Monitoring is available for: hurricane warnings tornado warnings thunderstorm warnings flash flood warnings special marine warnings earthquake epicenter locations wildfire boundaries

In addition to the LOCATION Analyst risk concentration tool that allows you to visualize and quantify the concentration of insured properties weighted by the amount of risk, weve developed a new tool that helps you identify areas that have a high concentration of exposure based on policy limits. The system assigns the coverage amount to each policy and then maps the policies from lowest to highest concentration. You can easily see where youre focusing your premium dollars. You can use the map and associated report to manage policies at the time of renewal and look for areas that could offer reinsurance opportunities. Trying to build this new functionality yourself would be challenging. LOCATION Analyst gives you the data, resources, and GIS technology to bring a new level of analysis to your book. L

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Customizing LOCATION Services

The LOCATION suite of products includes more than 25 independent services that give you property and risk information for a variety of natural and man-made hazards, as well as diverse territorial and rating informa tion. Did you know that we can customize almost all services, and many insurers including some of the top ten writers have already taken advantage of that offering? You may feel that the existing set of LOCATION services meets your needs, but if you would like to customize some services, here are a few of the most popular choices.
LOCATION Territory Services

LOCATION provides the following territory files: ISO personal auto rating territories ISO commercial auto rating territories ISO personal property rating territories  ISO commercial property statistical reporting territories ISO Group II zones ISO businessowners rating territories  ISO commercial earthquake rating territories  ISO commercial general liability rating territories All those ISO territory files are available free of charge for participating insurers. (See our website at www.isopro.com/freeterritories for more information.) A number of insurers have chosen to customize LOCATION auto and property territory data. Some companies start with our existing territory definitions and make slight modifications, either by changing certain attributes (using their own ing naming convention, for example) or adjust geography (splitting or combining existing territories). Other companies start from scratch and define their territories using administrative boundaries (such as counties and cities) and/or physical descriptions. Some go a step further and use ZIP codes or even census tracts as the basis for their territories. Whichever option companies select, they know they can count on our vast experience, which spans decades of work on territory definition, digitization, and presentation in the LOCATION output format.
LOCATION Distance to Coast Service

In recent years, however, a number of insurance companies asked to customize that standard coastline definition to meet their own criteria. (The Connecticut Insurance Department references our methodology for defining the coast, making it a de facto standard for underwriting guidelines in that state. Go to http://www.ct.gov/cid/lib/cid/underwritingcoastal.pdf to review the Defining the Coast section on page three.) Some companies feel they can better manage their costal exposure by customizing the coastline. Interestingly, we see companies both moving the coastline inland, effectively reducing their coastal exposure, or moving the coastline in the opposite direction, allowing them to write more business in coastal areas (specific areas they designate as their expansion zones). In some cases, redefining the coastline isnt necessary. Certain companies want to preserve our standard coastline but with fewer distance bands than the 16 currently available in LOCATION. Or they may want to create a new band not available in the existing product (for example, 0 to 750 feet). As you can see, many customization options are available. Our GIS and LOCATION teams will be happy to work with you to implement the one that best fits your underwriting criteria.
Other LOCATION services

C
Coastline definitions can vary As the maps illustrate, theres no single definition of a coastline for the insurance industry. The maps show three different coastline definitions for the same portion of South Carolinas coast. Company A draws the coastline deep inland and includes portions of the Intracoastal Waterway. Company B takes the opposite approach and ignores virtually all inland water bodies. Company C uses the standard ISOdefined coastline.

It may be surprising, but theres no generally accepted definition of coast for property/ casualty insurance purposes. When the coastline is simple and the landmass directly borders the open ocean, delineation is relatively easy. However, once the coastline
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becomes more complex and includes barrier islands, bays, river mouths, canals, and so forth, definitions become subject to interpretation. For years, LOCATION has used our proprietary angle of impact measurement (AIM) methodology to define the coast for insurance purposes. That methodology attempts to reflect accurately and objectively where the highest winds from a severe storm or hurricane will occur along a major body of water and, consequently, where the most wind blown water damage will occur.

Although it happens less frequently, we can customize other LOCATION services as well. Sometimes insurers request combination or hybrid services to manage exposure in selected states or coastal areas and merge the concepts of territories and distance to coast. In the most extreme cases, insurers divide the state or selected area into two zones only (yes/no), predefined by them. Typically, however, the request calls for a number of zones (such as restricted, managed, standard, and so forth). LOCATION returns the appropriate zone name or number for each property address, and that information determines the type of underwriting action the insurer will take. We can base these truly custom services either on GIS files already created by the insurance company or descriptive definitions that our GIS team will map. In either case, the customer can control both the input (territory definitions) and output (field definitions and layout) of the custom LOCATION service. L

California FAIR Plan increases efficiencies and reduces expenses with LOCATION PPC and FireLine
TM TM
Negligible 4% Low 1% Moderate 7% Extreme 41%

High 47%

FireLine Hazard
Negligible Low Moderate High Extreme Property with claim

FireLine accurately assesses wildfire and SHIA hazards The Station Fire, which started on August 26, 2009, was the largest fire in the recorded history of Angeles National Forest and the tenth largest fire in California since 1933. Using FireLine to assess the losses, the tool identified 95 percent of properties with claims as exposed to the wildfire hazard. It also identified 83 percent of properties with claims within the Special Hazard Interface Area.

John Boeder, vice president of Underwriting and Operations for the California FAIR Plan Association, sat down with us to discuss the companys implementations of LOCATION PPC TM and FireLineTM. As a residual market company, the California FAIR Plan Association provides insurance to those that are unable to obtain it in the voluntary market. The FAIR Plan provides coverage mainly for residential properties, although it also insures a small number of commercial properties. As a private association comprising all insurers licensed to write property insurance in California, the FAIR Plan provides coverage primarily for policyholders in high-risk areas (high crime risk, for example) but also for those in wildfire areas. Its critical, given the FAIR Plans Plan of Operation, that our rates are actuarially sound and based on actual exposures, says John Boeder for the Association. While we used paper manuals to look up ISO Public Protection Classification (PPC) codes for many years, the time had come to move toward a more automated and efficient way to operate.
Implementing LOCATION PPC Service

on the classifications. Automation with LOCATION PPC has ensured accurate rating of our quotations and eliminated the inefficient manual process, says Boeder. After much success with the new-business implementation, Boeder realized the Association could also benefit from using LOCATION PPC with its renewal book of business. Instead of annually renewing policies and assuming an unchanged PPC code, the Association could tap into the power of LOCATION capitalizing on detailed infor mation collected by ISO on fire protection boundaries, distances to responding fire stations, automatic-aid agreements, and water sources. Boeder managed the implementation, and LOCATION PPC was up and running for the Associations renewal business in August 2010. Every renewal goes through LOCATION PPC now, says Boeder. Weve been tracking renewals for about a year since our implementation, and our system automatically changes the PPC code when theres a 100 percent address match in the LOCATION database. If theres not a 100 percent match, FAIR Plan staff review the renewal. Those PPC changes ensure the rating accuracy for each renewal, says Boeder. The LOCATION PPC database contains every valid United States Postal Service (USPS) address and many not recognized by the USPS. However, the FAIR Plan sometimes needs information on property locations not in the database. When that happens, we contact ISO and arrange for a field representative to conduct a property survey on-site, says Boeder. ISO turns around those surveys within 30 days, well within the time frame for a policy renewal.
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Ninety-six percent of the FAIR Plans new business comes through the broker channel on its website. As part of the online application submission process, getting an accurate and up-to-date PPC is key. The FAIR Plan implemented LOCATION PPC several years ago as part of its behind-the-scenes application process. In seconds, the system determines the PPC code for every property address. The FAIR Plans premium schedule correlates with the 11 different PPC codes, so the Association is confident theyre charging accurate premiums based

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LOCATION and LOCATION Analyst now part of Verisk Insurance Solutions

For more than 40 years, underwriters and other insurance professionals have relied on ISO for the data and analytics they need to do business. LOCATION and LOCATION Analyst are just a few of the many ISO products those professionals have used to evaluate and manage risk. ISO is a member of the Verisk Analytics Family of Companies. In 2010, Verisk Analytics introduced the Verisk Insurance Solutions umbrella brand, which includes ISO, AIR Worldwide, and Xactware. Verisk Insurance Solutions highlights the companys comprehensive set of products and services for the property/casualty insurance marketplace. Starting with this issue, youll notice the branding change and see the Verisk Insurance Solutions logo. You can be sure well continue to offer high-quality data, leading-edge analytics, and unparalleled decision support capabilities to help you with your risk management needs. The existing relationship you have with ISO or any other Verisk company remains unchanged, says Christopher H. Perini, vice president and chief marketing officer for Verisk. Youll continue to work with us as you have in the past with the added benefit of having access to all of Verisks products and services.

California FAIR Plan

Implementing FireLine

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GeoTRIVIA
As a LOCATION user, you deal with geographic data every day. Test your knowledge with our GeoTrivia quiz. Youll find the answers at www.iso.com/geotrivia. Good luck! 1. What is the fire triangle? 2. What is a ZIP code? 3.  What was the largest (in size) wildfire in the continental United States in the last 15 years? 4.  In which 5 of the 366 metropolitan statistical areas in the United States did the percentage of workers who commuted by public transportation exceed 10percent? 5.  How did GIS play a role in the 2011 National Level Exercise (NLE) that helped assess organizations preparedness and how they would react to a mock 7.7-magnitude quake?

When Boeder came to the FAIR Plan about six years ago, the wildfire rating program charged customers additional premium only if there was an actual brush/wildfire fuelbase within 200 feet of the insured property. The FAIR Plan charged higher premiums for closer distances but didnt charge any additional premium for properties more than 200 feet from the wildfire exposure, with no consideration taken for other factors beyond fuel for the brush/wildfire exposure. The Association used ISO to conduct property inspections on any risk in a potential brush/wildfire area to determine the distances. Boeder realized that the FAIR Plans underwriting and rating process needed an automated method for assessing and scoring wildfire risk. After reviewing FireLine and other competitive products, Boeder concluded that FireLine was the optimal wildfire assessment tool. Atmospheric and Environmental Research (AER) manages FireLine and is a member of the Verisk Analytics Family of Companies. Using a combination of detailed satellite imagery, digital elevation maps, and digital street databases, FireLine provides a wildfire hazard score for each address to assess and manage exposure. Our method ology didnt take into account the concept of wind-borne embers or anything other than distance to fuel, says Boeder. FireLine identifies properties located in Special Hazard Interface Areas risks outside high-fuel areas and exposed to high heat and wind-borne burning embers. L

Verisk is updating our mailing lists. If youd like to continue receiving OnLocation, please go to www.isopro.com/subscribe and check off the OnLocation subscription box.
For more information on LOCATION or to add others in your company to the OnLocation mailing list, contact our Customer Support Center at 1-800-888-4476. Or send e-mail to [email protected]. Visit onlocation.iso.com to learn more.

545 Washington Boulevard Jersey City, NJ 07310-1686 www.verisk.com/insurance

Insurance Services Office, Inc. 2012. ISO, the ISO logo, ISO Risk Analyzer, LOCATION, and Verisk Analytics are registered trademarks and FireLine, PPC, Verisk, Verisk Insurance Solutions, and the Verisk Insurance Solutions logo are trademarks of Insurance Services Office, Inc. Property Claim Services and PCS are registered trademarks and A-PLUS is a trademark of ISO Services, Inc. AIR Worldwide and the AIR Worldwide logo are registered trademarks of AIR Worldwide Corporation. Xactware is a registered trademark of Xactware Solutions, Inc. All other product or corporate names are trademarks or registered trademarks of their respective companies.

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