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How Some Captive Insurers Are Using Technology To Mitigate Risk

Businessman holding hands out with globe, technology and "map" of network
August 24, 2017

A panel at the Vermont Captive Insurance Association (VCIA) 2017 Annual Conference a few weeks ago explored uses of technology to mitigate risk. Panelists included Anthony Benish, general counsel of Five Families Insurance, Ltd.; Richard Denning, president of Shelter Island Risk Services; and Steve McElhiney, president of Tall Pines Insurance Company and EWI Re, Inc.

Mr. Benish is the general counsel for Cook-Illinois Corporation, one of the largest privately held school bus companies in the United States. The company operates a fleet of over 2,200 school buses, shuttle buses, and vans in Illinois and Missouri. Cook-Illinois formed Five Families, a Vermont captive insurer that issues auto/general liability and workers compensation coverage to Cook-Illinois.

Cook-Illinois has implemented a good deal of technology, mostly driven by bid specifications with the local school districts for which it provides bus services.The technologies that inform their risk management practices and claims handling practices include the following.

  • Zonar for GPS tracking. According to Mr. Benish and the Zonar website, this technology ensures that companies "are aware of the locations of each vehicle and piece of equipment" and can "locate it with pinpoint precision." This technology also provides data to help companies determine when repairs are needed. Zonar can track driving habits, as well as where riders get on and off the road.

  • Video recordings of students, the bus driver, and the external surroundings that allow an objective view of bus interactions. Mr. Benish said that while video technology is mostly good, with some less desirable results, the objective nature of this data allows for quick conflict resolution.

  • GreenRoad, a system that encourages safe and efficient driving by providing drivers instant feedback. According to Mr. Benish and the GreenRoad website, this technology provides in-vehicle coaching, contextual safety insights and driver status, quick fleet deployment, and fleet management tools for tracking and mapping. GreenRoad says its technology is contextual and predictive, and it incorporates deep learning behavior and smart algorithms.

According to the website of VLAB, a nonprofit technology forum, "Deep learning algorithms can analyze just about anything—including images. They spot patterns and draw conclusions. Algorithms can transcribe speech and add accurate metadata to images. For consumers, this means no more tagging pictures or sorting email. For businesses, this means making sense of messy data. The algorithm might need some initial guidance to know if it’s on the right track, but it’ll learn to be self-sufficient."

The VLAB website continues, "Operators of a deep learning algorithm feed data to the algorithm and then train the algorithm to evaluate the data effectively. The operators penalize evaluative weights that make wrong tags and reinforce weights that make correct tags until the algorithm can produce reliable results. Deep learning processes have recently disrupted robotics, manufacturing, agriculture, and a plethora of other industries, and deep learning processes will continue to do so."

While GreenRoad has provided Cook-Illinois a large amount of "deep" data, the corporation has not yet "narrowed the data down to execute for impact," Mr. Benish said. Cook-Illinois actively uses the data it collects from Zonar, video recordings, and other sources to inform in-house claim reporting and weekly communications on all claims with the dedicated adjusters at Gallagher Bassett. The data collected also enables Mr. Benish to provide direct supervision over all claims handling, from initial report to file closure. "Nobody knows your risk as well as you do," Mr. Benish said. "The more involved you are in your risk, the more you know."

Mr. McElhiney's firm, Tall Pines, is a Vermont captive used to provide global property and casualty insurance for Contran Corporation, a Fortune 1000 conglomerate holding company with operations in high-hazard heavy industries, including industrial, mining, chemicals, component products, waste management, and titanium metals.

He discussed the idea of the Internet of Things (IoT) and the generally unknown data revolution in progress that is greatly improving the industrial process. Industry is automating to achieve more efficiency, become leaner, compete, and win, he said, citing Walmart and Amazon as examples of "winners." It is not that they have better products, he said, but that they simply have fast supply chains.

According to Amazon Web Services, the IoT "is a term coined by Kevin Ashton, a British technology pioneer working on radio-frequency identification (RFID) who conceived a system of ubiquitous sensors connecting the physical world to the Internet. Although things, Internet, and connectivity are the three core components of IoT, the value is in closing the gap between the physical and digital world in self-reinforcing and self-improving systems."

Mr. McElhiney discussed the IoT in the context of industrial organizations similar to the parent company organization of Tall Pines, in reference to Internet-connected embedded objects (for example, in machinery) as well as embedded sensors allowing for real-time data exchange to inform risk management practices. In the past, an inspector would visit a site twice a year to inspect machinery; now, the machinery is inspected in real time, with a continuous feed of data.

"Insurance pricing in the next 5 years will be less about comparing one company against statistical group data of like-kind companies, and more about deep and precise individual and tailored quotes based upon their unique risk attributes and exposures gathered through these technologies," Mr. McElhiney said. "This will affect all lines of insurance and will transform the insurance model for commercial insureds and will revolutionize the 'physical inspection' process."

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