AAIS Gains Approval for Data-Driven Fire Risk Model

The new model is based on a wide range of data that better reflect the drivers of loss, improving on simplistic assumptions of earlier models used within the industry.  

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Insurance advisory organization AAIS (American Association of Insurance Services; Lisle, Ill. has received approval from the Florida Office of Insurance Regulation for its new predictive model. AAIS describes the new Fire Loss and Mitigation Evaluation Score (FLAMES) as a significant improvement on existing methods of quantifying expected severity of fire losses. AAIS is currently exploring developing the model for other jurisdictions and lines of business.

Ed Kelly, President and CEO, AAIS.

AAIS notes that current methods of measuring fire risk reflect fire protection capabilities within the geographic boundaries of individual fire departments but ignore variation in capabilities and claims severity across communities. Using fire department boundaries also makes it difficult for insurers to integrate risk scores into underwriting systems and processes.

“Our Member carriers have expressed frustration with existing methods of assessing fire risk, which haven’t kept pace with changes in public fire protection capabilities and modern mitigation approaches,” comments Ed Kelly, CEO, AAIS. “Our Data Engineering and Actuarial Team took a rigorous, analytical approach to solving this decades-old problem, and now insurance carriers and regulators can have a more accurate picture of fire risk.”

Several key principles guided the development of the FLAMES model, including the need for a more data-driven, analytical solution that is acceptable to insurance carriers, regulators, and other industry professionals, according to AAIS. The organization reports that it evaluated a wide range of data including National Fire Incident Reporting System (NFIRS) data, carrier claims data, weather, crime, economic activity, fire station locations, fire hydrant coverage, traffic patterns, population density, building stock characteristics, and vacancy rates, which best reflected the drivers of loss.

Current approaches prioritized the location of insured properties relative to fire protection resources and infrastructure. According to Matt Hinds-Aldrich, PhD, AAIS Senior Risk Strategy Lead, “Legacy models have been overly simplistic given advancements in local fire protection. Rather than a checklist of input measures to grade individual local fire department performance, FLAMES measures outcomes in terms of severity of fire losses by ZIP code.”

Phil LeGrone, VP, Data & Actuarial Solutions, AAIS.

Standardizing, Consolidating and Validating Mitigation Data

AAIS says that it established relationships throughout the fire protection industry and received input from industry experts and thought leaders regarding ways to begin to standardize, consolidate, and validate mitigation data. By moving away from checklist approaches to assess fire protection efforts, AAIS believes FLAMES can encourage fire departments to prioritize collaboration and coordination in both response and mitigation efforts beyond the boundaries of their respective jurisdictions.

“We are excited to have regulatory approval for FLAMES to be used as part of our Florida Homeowners By-Peril program,” says Phil LeGrone, VP, Data & Actuarial Solutions, AAIS. “FLAMES was built as a flexible countrywide model, and we are already exploring ways to broaden adoption of our methodology in other jurisdictions and additional lines of business.”

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Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at AnthODonnell@IIReporter.com or (503) 936-2803.

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