Insurance and flood-risk

31 July 2008, 10:57am

Insurance companies lose out on millions in lost revenue

British insurance companies are missing out on revenue from properties in flood‑risk areas, according to new research* from Ordnance Survey.

A study by Britain’s national mapping agency exposes potential lost profits reaching millions of pounds because properties are inaccurately classified.

Following last year’s floods, which cost the UK insurance industry an estimated £3 billion,** Ordnance Survey conducted analysis of more than 270,000 addresses located in Peterborough, Kingston upon Thames and Carlisle. Using OS MasterMap, its large-scale geographic database, and detailed historic data on flooding from the Environment Agency, Ordnance Survey has established that more than a quarter (26.7%) of properties could be inaccurately classified as being at risk of flooding.

“Buildings situated in specific postal‑code areas are often automatically pre-marked as ‘at risk from flooding’, which our analysis proves is very often not the case in reality,” says Sarah Adams, Insurance Sector Manager at Ordnance Survey. “As a result, insurers could be overlooking or offering, uncompetitive quotes for certain addresses, and are losing out on potential revenues. By extrapolating our findings to a national scale, the problem is likely to be costing insurance companies millions of pounds every year in lost opportunities.”

At present, many insurance companies are using risk assessment methods that profile buildings based on their postcodes, but this leaves a large margin for error. Even though a property may never have flooded and is at no real risk, they can be penalised simply because they are in the same postcode area as high-risk properties.

However, insurers using geographical information systems (GIS), which focus on analysing individual households rather than postcodes, can better assess the real risks involved and calculate appropriate premiums accordingly. This avoids the problem of low-risk houses being refused insurance or quoted unnecessarily high premiums. GIS users can offer a better deal to customers when many of their competitors are working on inaccurate data.

Digital mapping, such as OS MasterMap, allows insurers to look at each property individually when considering its risk profile. When looking at flood risk, height and the distance from the nearest body of water are among of the primary factors. A detailed map gives the insurers the opportunity to “see” the location of the property in detail and make a better informed decision as to the risk that particular property affords.

OS MasterMap is Ordnance Survey’s flagship large‑scale geographic database and was used for the research project. It contains approximately half a billion uniquely identified geographic features and is updated with an average of 5,000 changes every day. It records every fixed feature of Great Britain larger than a few metres, all in one continuous digital map. This creates a detailed database containing the most up‑to‑date information available to insurance companies at just the touch of a button.

www.ordnancesurvey.co.uk

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