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Gender ruling will mean insurers need to find new rating factors according to David Cahoon

David Cahoon is Head of Commercial Analysis and Packages at NIG (part of RBS Insurance (RBSI)), having worked within the insurance industry for over 20 years. David won the Insurance Times award for Innovation in 2010 for implementation of RBSI’s new ground-breaking geospatial underwriting tool.

How long have you been using our mapping data?

Outside of general map usage we started taking Ordnance Survey products to supply our geospatial tool project in 2008.

What do you find most useful?

The most useful is ADDRESS-POINT®; it is diffi cult to see how we could function without this as most of our detailed analysis is completed using it.

Why did you become interested in geographic information?

Having worked in insurance underwriting for 20 years I cannot remember a time when geography was not a central consideration in risk assessment. Of course there has been a seismic change in the detail of risk assessment the industry undertakes. Back then assessing the likely flood risk was largely based by looking at how far premises were from a watercourse on an Ordnance Survey paper map and if the oldest underwriter in the building could ever remember the general area flooding. I am glad to say times have changed markedly and our latest models provide insight down to 5 square metres across perils: flood subsidence, theft, fire and so on.

What, in your opinion, are the key issues facing the financial services industry over the next three years and how can geographic information help?

In general insurance three of the key issues facing the industry will be:

1. Minimising volatility in financial return. The industry is characterised by cycles of a number of years of profi t followed by a number of years of loss. For a publicly-owned insurance company, being able to minimise the fl uctuation in its results is key to making itself a comparatively attractive investment prospect. A geographical information system (GIS) is a central tool that ensures underwriters put the right price and terms on peril-impaired business, as well as giving the ability in ‘real time’ to manage any accumulation issues that can arise when considering to take on new business.

 

David Cahoon from NIG

NIG use a range of our detailed mapping and addressing products in their systems.

 

2. Change in legislation that changes the way in which we assess risk and price: an example of this would be the ‘Test Achats’ challenge to the 2004 Gender Directive, which has meant that insurers are no longer able to rate on the basis of sex. Thus removing one of the most established rating factors in vehicle insurance. This will put pressure on the industry to look for alternative means of risk selection. However, the increasing digitisation of both insurance- and non-insurance related information has opened up possibilities of new rating factors. GIS presents an easy and attractive route for collating this data and enabling rating engines to quickly take advantage of these advances.

3. Capital management. Under Solvency II there is increased onus on insurance companies to be able to demonstrate not just in-depth knowledge of their own exposures, but of the models that the market and its advisors have used for calculating their catastrophe exposure, and how and why their own models may differ from these. This will be a steep learning curve for all involved. But, with the recent advances in tools such as the RBSI geospatial system, it allows analysts to look at perils such as flood in a considerably more granular way than traditional reinsurance models. The more detailed views will allow insurers to explain how their books of business are actually better than the generalised industry models would predict and need less capital to support.

Tell us something not many people know about you? A fun fact or claim to fame, for example.

One day I hope to live in a house where my wife can’t fi nd a DIY task, especially during the Six Nations.

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