Insurance carriers in California who offer homeowner's policies are required to offer earthquake insurance as an adjunct to such policies. As a result of the Northridge earthquake in 1994, most if not all insurance carriers stopped offering homeowner's policies in Southern California because of risk management concerns relative to earthquake.
This presented the opportunity of a lifetime to "Pacifica Insurance" (fictitious name), a relatively small carrier who saw this as a chance to gain market share and enter new markets with their homeowner's products. To support this endeavor, a GIS system was created to store policy and risk data, and to provide an interactive real-time querying capability - simple enough for a non-technical administrative assistant or telephone representative to use while the agent is still on the phone - to support underwriting decisions.
Operating Environment
Pacifica Insurance is still largely a DOS-based shop on a Novell 3 platform. The telephone reps and underwriters all have Windows 3.11. There is no real internal MIS function, with the company outsourcing to fulfill its processing, network administration, user support and IS development needs. There are few, if any, "power users" on site. As such, ease-of-use was a critical design consideration and applications-specific training a hard implementation requirement.
Given the operating enivornment and needs, Atlas GIS was chosen as the application development platform.
Initial Implementation
At first, simple criteria were employed to guide the effort. Existing risks were buffered, and no additional risks could be underwritten within the buffers. Further, a good deal of subjective knowledge, and officer and developer experience with California geography, was also brought to bear on the decision-making process. These criteria rather quickly proved too limited as the pace of business accelerated, and risks began to cluster in known and unknown fire, quake and flood zones. A long-term plan was created to include information about such high-risk zones in the GIS system, rather than relying on the subjective knowledge and experience of staff and line personnel.
Adding The Natural World GIS Component
As one component of the long range plan, a vegetation and brush layer was added to the system. This layer, CALVEG, was based on Landsat data collected by Parker and Matyas (1977) under the aegis of the California Department of Forestry. Over 80 types of vegetation were identified, which we collapsed into a manageable set of 16 categories, including Urban/Agricultural and Water (e.g. "Mixed Conifers"). Since the baseline data is now 20 years old, it is continuously updated and corrected dynamically when field, staff and consulting personnel identify that the nature of an area has changed.
CALVEG - A Product Of The Fire & Resource Assessment Program
The CALVEG database was produced under the aegis of the Fire and Resource Assessment Program (FRAP) of the California Department of Forestry (CDF). FRAP serves the strategic planning and resources assessment function for the California Department of Forestry and Fire Protection, analyzing trends in the state's natural resource systems, economic and social environments, and public needs, and identifying alternative programmatic responses to these changes.
The mission of FRAP is to provide the CDF with the capacity to systematically and continuously examine, evaluate, and assess the goals of its fire protection, resource management, management services, and other operational programs. The program mission is to be carried out through several mandated assignments. These include coordinating the development of an annual strategic plan and the Board of Forestry Fire Plan, periodic classification of State Responsibility Areas (SRA), conduct of the Forest and Rangeland Resources Assessment, and other long-term duties as directed.
FRAP functions are split for purposes of administration into several groups. The Strategic Policy Analysis and Planning Section conducts fire protection planning analysis and support, strategic evaluations, short-term analysis of existing programs and services, and other departmental policy reviews. The Geographic Information Systems Unit, in cooperation with the Information Technology Division (ITD), has the responsibility for the development of a GIS for the Department's use at a statewide level, and to develop strategies for the implementation of this technology at the program, region and field level.
The Core Pacifica Insurance GIS
The core of the GIS, and its management, are deceptively simple. The system includes regions (county, place, and current ZIP code polygons), lines (highways, major roads, streets), and points (policies and prospective policies). Layer visibility has been set at short (e.g. full street detail, 1 mile to the inch), medium (e.g. zip codes and major roads, 5 miles to the inch) and full extent (counties, highways, policies) intervals. The streets are based on a premium GDT Dynamap product, for both geocoding and display. Each morning, the previous day's new policies are brought into the GIS from the processor system via a user-friendly conversion program written for this purpose - SQL queries definitely would not work for the kind of user for whom the system is designed. In the GIS, the new policies are geocoded and buffered; and changes to existing risks are captured and the records in the GIS updated. An exception report is created for all addresses that cannot be at least ZIP+4 geocoded, and these exceptions are geocoded interactively and/or corrected with the reps and/or the agents. Before the final issuance of a policy, underwriters use the GIS system to determine risk exposure by category by geography to support their decisions.
The Pacifica Insurance GIS With CALVEG
This map was produced from the CALVEG and Policy layers only - however, the political and postal boundaries as well as the highways can very easily be turned on and off in the GIS when relative spatial comparisons need to be made. As changes to the dominant vegetation in an area are identified - usually as the result of development -- codes are changed in the database based on street and highway demarcations, sometimes resulting in new and adjusted polygons.
Conclusions
Pacifica has now underwritten over 30,000 homeowner's policies, and their GIS has helped them to spread the risk spatially. As an adjunct to the dynamic vegetation/fire database, raster data has also been included so that risk information can be reviewed more visually, especially for presentation purposes.
One of the most vital additions that GIS has made to Pacifica Insurance is the identification of clustered risks in areas previously thought to be predominantly urban or suburban. As a carrier located in Southern California, a good deal of geographic and geologic expertise about this region was available in a number of forms - digital, paper, people. However, the GIS was a real eye-opener in other California regions, especially between San Jose on the peninsula and Santa Cruz on the coast. By avoiding over-concentrations in high-risk areas previously unidentified and misidentified, Pacifica has been able to control risk exposure and ultimately, policy cost.
GIS technology has had a good deal of impact on transforming Pacifica from a small niche carrier to "a player", whose ability to review risk patterns digitally against risk areas represents a sustainable business advantage.
Steve Lackow
Partner, Retail Profit Management
17130 Devonshire St, Ste 205
Northridge, CA 91325
Phone 818-831-7607
Fax 818-831-9078
E-Mail rpminfonet@earthlink.net
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