Hot Topics: Hot Parcels

Now, doesn’t that just burn you up!

Last October, when the San Diego area sustained more than $1 billion in insured losses from seven deadly wildfires, managers with a Texas-based company by the name of The First American Corporation, called up one of its largest clients, Citibank, with an urgent bit of news.

Citibank, the First American managers said, had about 1,200 properties at risk from the fires that scorched parts of San Diego County, according to David Rogers, marketing director of First American.

The number, large as it was, wasn’t about to threaten the company’s quarterly earnings, not when the company had a subprime lending crisis on its hands and it’s former CEO, Chuck Prince, was about to step down.

But within weeks of the fires, said Rogers, Citi got another call, this time from its insurance carrier. The carrier, according to Rogers, told the bank it was holding mortgages of as many as 14,000 properties at risk of damage in the so-called burn polygon.

How was such a large discrepancy – about 12,800 properties – possible? “They were going by the zip codes in areas supposedly affected by fires,” said Rogers. The carrier simply didn’t have the granularity of First American, he said.

In itself the discrepancy may not have amounted to much. But the only way to check whether a house had suffered any damage was to send inspectors in a car, at the cost to Citibank of $50.00 per property.

Cost of inspections to Citi based on 1,200 properties: $60,000. Cost of inspections to Citi based on 14,000 properties: $700,000.

OK, we’ll admit that First American is getting good press in this blog post. But hear me out as to why First American deserves some attention here.

For decades, the company’s been supplying mortgage lenders with property data, down to the latitude and longitude of the location of a home. As a result, the company has what it believes is the most accurate property data in the nation because drills down to the very parcel on which the property stands.

But it’s only in the past two or three years that information at the parcel levels has been available, in part because of geospacial information systems. So now, looking to expand into new markets, First American will soon release what it calls its Riverine Flood Risk Score.

The tool, a sort of FICO score for homes and businesses, will help underwriters pinpoint how much a property is exposed to potential flooding.

The model applies hydrological principles to risk data, according to Kevin Madden, senior vice president of business development for First American, and provides a more accurate understanding of property risks faced by homes and businesses in and around flood zones.

Data quality has always been an issue among the carriers. Many use data supplied by the Federal Emergency Management Agency to determine the exposure of properties to flooding, but that data isn’t always up to date.

“With insurance carriers, you may not know how current the data is,” said Rogers. “So there’s billions of dollars in unrecognized exposure out there because tools have not existed.”

There are other data vendors who assess the risk of flooding, of course, and some of them buy the data from others like First American. But what makes First American different is that it has spent decades compiling data on individual properties. It will soon own data on more than 100 million of about 114 million land parcels in the U.S., Rogers said.