Using a fire underwriting survey (FUS) in conjunction with geographic information systems (GIS) gives underwriters far greater detail for their risk analyses
Hidden exposures and risk trends in both personal and commercial property lines can be uncovered with the use of the Fire Underwriters Survey (FUS) and geographic information systems (GIS), said Alan Pang, director of property and casualty insurance business services for CGI Risk Management Services.
Pang spoke at the Property Casualty Underwriters Club (PCUC) January luncheon in Toronto about the elevated level of property detail that FUS and GIS can offer underwriters when determining the risks and prices associated with particular policies.
SIZING-UP FIRE PROTECTION
FUS is a program to grade the quality of public fire protection in Canadian communities. Funded by insurers, CGI and its predecessors have been conducting field surveys since the early 1900s to advise of deficiencies and make recommendations to improve fire protection. “Over the years, the FUS recommendations have resulted in hundreds of millions of dollars of improvements in municipal fire protection infrastructure,” Pang said. “A win-win for both local homeowners and businesses and the insurance industry.”
Within the survey, two grading systems have been developed, Pang continued. The Public Fire Protection Classification system for commercial property has 10 grades, reflecting the ability of a community to control and extinguish major fires in commercial, industrial and institutional buildings. Grade 1 signifies the best fire protection, and Grade 10 is the worst.
The Dwelling Protection Grade classification system has five grades, reflecting the ability of the community to extinguish fires in small dwellings such as homes. Again, Grade 1 is the safest.
Pang listed a number of factors the grading system takes into consideration: the quality of the fire department makes up 40% of the grade, including, among other things, a consideration of the number and location of stations, and staff and training and equipment quality; water supply accounts for 30% of the grade and considers factors such as pumping and storage capacity, as well as the reliability of the water supply; fire safety control is 20% of the grade, looking at things such as building, fire and electrical code enforcement and inspection staff; and fire service communications is the basis for 10% of the grade, taking into account the number of emergency lines relative to population, adequacy of portable radios for communication at fire sites.
DIGGING EVEN DEEPER
When FUS is used in conjunction with GIS, the level of detail on a property increases a great deal, allowing the underwriter to precisely locate the risk, analyze its exposures and develop a more accurate price. Clicking to a slide showing a map of Hamilton, Pang said Hamilton is the only Ontario municipality to have an area within its city limits that scores Grade 1 in the FUS commercial grading. But, he continued, “Hamilton also has adjacent areas ranging from Grade 4 to Grades 7-9”. Pang pointed out that the geographical areas associated with these grades does not conform to three or six digit-postal codes. That is where GIS can help locate a risk down to a longitude and latitude level.
He clicked to a GIS-enhanced map of City of Edmonton, showing the perimeters of the different postal codes within the city, as well as the number of houses within each postal code. In addition, Pang overlaid the reported sewer backup and water damage claims incurred in each postal code following the July 2004 rainstorm. He pointed to two postal code areas, located on opposite banks of the North Saskatchewan River. The first postal code had 7,602 homes and incurred a Cdn$51.1-million sewer back-up and water damage loss. The second had 3,611 homes and incurred only Cdn$4.46 million in property damages. Although summarizing industry claims by three and six-digit postal codes helps identify the general vulnerability of risks to sewer back-up and water damage claims, GIS allows the underwriter to locate a commercial or habitational risk with precision by longitude/ latitude and then assess flood and sewer back-up exposures by looking at the risk’s digital elevation in proximity to flood plains and combined sewer systems. This is important, he said, “because a difference of a few meters in elevation can determine whether a risk gets flooded or is linked to a combined sewer system which has been known to generate more sewer back-up claims.”
Pang emphasized postal codes are designed to help deliver mail and not assist insurers in managing their exposures to the level of detail required. He said his team is currently working with local governments across Canada to gather as much GIS digital information as possible on fire defenses, flood plains and critical infrastructure. “This level of information combined with CGI’s claims data bases in GIS would be the ideal street address underwriting tool for insurers”, he said.