Hurricane Sandy, which rolled over New Jersey and New York one year ago this week, majorly affected many aspects of the insurance industry. This week, we've talked about regulation, risk management and more. But how did the event impact insurers' technology investments and strategies? We reached out to industry observers and asked.
Michael Fitzgerald, Celent: One of the challenges related to justifying the business case for system modernization is the issue of hard and soft benefits. It is difficult to justify the required level of investment by pure expense savings (headcount reduction, infrastructure cost reduction, etc.). Superstorm Sandy clearly demonstrated the benefits of system modernization, but not from a "hard numbers" business case perspective. I know of one insurer, heavily concentrated in the affected geographic area, who states that they would not have been able to properly support their customers if they had not upgraded their claims systems several years before. The level of claims they received, the complex coordination between different parts of the organization, the ability to adjust their approach as the situation developed would not have been possible on their legacy system. Now, it is very unlikely that the cost benefit analysis for their new system included dollar benefits related to a catastrophe response, but there is no doubt that there was a significant impact on their business and their customers as the result of their new capabilities.
Stephen Applebaum and Pat Speer, Aite Group: Insurers had a wake-up call as a result of Hurricane Katrina, and responded to Hurricane Sandy with improved risk management efforts and the investment in advanced mobile and geospatial technologies. Facing an increase year over year of CAT losses (from $33.6 billion in 2011 to $35B in 2012) property and casualty insurers appear to have finally embraced the need to study the prospects of climate change, recognizing patterns in extreme weather-related events and responding in both a proactive and a disciplined way.
While we're not convinced that P&C carriers were fully prepared for Hurricane Sandy's wrath, it's clear that they have incorporated CAT plans and sophisticated modeling techniques into their overall risk management strategies. Mobile technology also plays a role in the back office as insurers expand geospatial modeling efforts; i.e., linking geospatial data to digital maps to uncover relationships, patterns and trends that may not have been obvious without the insight provided by geospatial predictive modeling. This effort is especially effective in dense urban areas, where education about crisis management and disaster preparedness is vital. Mobile technologies are also being leveraged to engage policyholders with additional safety and resource information. Finally, insurers are reviewing how virtual payment technologies can be used for prompt distribution of claims advances for crisis events.
Karen Furtado, SMA: It is clear that Hurricane Sandy has caused insurers to look more closely at the business capabilities required to support major disaster situations. They are placing an emphasis on mobile enablement in a variety of dimensions: policyholder service, internal communications, claim processing and settlement, and certainly support for field personnel. Support for first-responders and adjustors is definitely high on the priority list.
At the same time, financial integrity is garnering more attention as insurers strive for real time reserve model information. Since Sandy, insurers have made great strides in improving their plans for business continuity. They are investigating and deploying more cloud-based services. And they are expanding the use of data and analytics capabilities in recognition of the need for thorough insightful data and the ability to clearly visualize every aspect of the disaster impact.
Kaenan Hertz, Ernst & Young: I became aware of a pretty large insurance company that during Sandy realized it couldn't send a direct mail piece because there's no address. And at the same time they had virtually no e-mail penetration. They couldn't even use what technology they had because they didn't have decent coverage. If you were able to digitally enable your mobile app so you can take a picture to initiate a claim, that is the kind of thing that improves the customer experience. Insurers are missing swaths of information that would allow us to help the customers. How do you develop the technology? We have CAT deployment technology readily available to make sure you can take care of everything. Some insurers didn't even have that.