Accurate Risk Assessment in Insurance: An Address Management Solution

By Cecilia Hellman

Ensuring that the company database contains accurate address records can save money in myriad ways. First, there are the savings that accrue simply from getting more mail to its intended recipients on time. These include savings on postage, faster receipt of funds owed, better customer relations, and a higher ROI on marketing campaigns (after all, the direct mail piece that doesn't reach its market doesn't lead to a sale).

For insurance companies, there is another, direct benefit to address management: accurate rate-setting. Auto insurance rates, for example, are significantly affected by the town in which the insured lives. Different towns have different risks of theft.Make a mistake in one direction, and you quote too high an insurance rate, leaving the customer no choice but to switch companies. A mistake in the other direction may leave you too vulnerable to risk.

This works on a larger scale, too, with accurate addresses helping make actuarial calculations more accurate. It is easier, for example, to use mapping software to determine exactly where flooding is most likely to occur when you know your address data is correct. The same goes for evaluating incidence of other location-specific claims, such as for mold or earthquake damage.

Why do mistakes currently exist among address data? In the United States, where 17%# of people move every year, 23.6% of all mail sent is incorrectly addressed*, and 2.7% of all mail never reaches its destination. Clearly, if nearly a quarter of all address records are incorrect in some way, then actuarial calculations by area could be improved simply by getting better address data into the database.

Following are some examples of industry problems associated with failure to implement a sound address management strategy:

  • A data entry operator at Company A misreads the handwritten address on a new contract. The customer is quoted an incorrect auto insurance rate, because the ZIP code is inaccurate. She compares rates and selects Company B, all based on an incorrect ZIP code. She tells her friends that Company A has very high rates.
  • A customer's address is 123 Main Street NE, but he forgets to mention the "NE" while calling in to change his address by phone. Because the Northeast section of town is where flooding typically occurs, he is given a reduced flood insurance rate, exposing the company to unacceptable risk.
Leveraging CRM Software
Gartner estimates that by 2006, more than 50 per cent of Customer Relationship Management (CRM) implementations will be viewed as failures.A key reason for this, according to the Gartner report, is that businesses have been slow to recognize the role of data integrity as a critical factor for achieving CRM success. With thousands, even millions, of dollars invested in CRM software, taking the next step of ensuring that the data it contains is accurate, makes sense.

Conclusion
In addition to the costs associated with late or lost mail, unleveraged CRM investments, and wasted marketing potential, the insurance industry is particularly vulnerable to problems associated with failure to implement a sound address management strategy. Because so much of risk assessment work is based on customer profiling and segmentation, a database of accurate address records is critical to insurance companies.

FOOTNOTES:
# According to the United States Postal Service, (http://www.usps.com/communications/organization/postalfacts.htm)
* According to a 2002 United States Postal Service report


Published Saturday, September 20th, 2003

Written by Cecilia Hellman



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