Dealing with a flood or major storm is not what the insurance sector needs right now but extreme weather events are becoming the rule rather than the exception. For the fourth consecutive year, extreme weather is considered the top global risk by likelihood over the next ten years, according to the World Economic Forum’s Global Risks Report produced in collaboration with Zurich Insurance Group. In the face of this increasing threat, the insurance sector needs accurate data at its fingertips to help manage losses, price according to changing risk in real-time, plan on the ground resources and claims support as events unfold.
There are no upsides to managing extreme weather events but in one respect, the more they occur, the more opportunity there is to learn and prepare for the next. We are also in a far stronger position today to understand what is happening in real-time with ‘live’ data on floods, river flows, windstorms now being fed into the insurance eco system. This dynamic data is a real step-change in how the market can prepare and respond to weather events.
In the past, when extreme weather events were relatively rare, reinsurance stepped in to provide resilience against losses. However, with the increasing frequency and severity of windstorms, tidal surges and floods, the insurance market is undertaking a deeper level of assessment at point of quote. Historical flood events, windstorm and subsidence are now part of many providers across the market’s pricing models.
Perils data is also now specific to the individual property – the foot print and geometry – factoring for both the elevation and slope from the nearest water course. The ease of access to geospatial data through insurance specific mapping products as well as the delivery of perils data directly into quoting systems is creating a comprehensive understanding of individual property risk, speeding up quotes, improving pricing accuracy and reducing manual processes.
Static data has been the main source of knowledge for assessing property risk, but today live data from the Environment Agency, Met Office and other organisations track flood events allowing insurance providers to map, track and act on what is happening in near real-time.
Managing extreme events is a highly pressurised time for insurance providers – live data allows them to make immediate adjustments to their pricing and underwriting in the affected areas. The latest geospatial mapping technology allows insurance providers to upload their policy data to see where there are accumulations of risk. As the threat of a storm or flood becomes real, they can gain an instant view of the level of exposure for an event and see how this might change over time anticipating the path of flood water or track of the storm. They can even plan different or worst case scenarios. This insight not only helps protects their bottom line but also allows them to focus resources on supporting policyholders they have identified as being at risk from the event.
In time, this live data feed will be complemented by near real-time images from drones and satellites – the EU has a satellite that’s focused solely on storm events.
Sadly, there is little we can do to control the weather, so increasingly the focus has to turn to risk mitigation and live data provides a window of opportunity to prepare and protect policyholders. Storms Ciara and Dennis resulted in £363m of claims. While the vast majority were for property damage, close to £33m was paid out in motor claims for damage to cars. Unlike properties, cars can be moved out of harm’s way with sufficient warning and with accurate forecasting.
In the future, the insurance industry will need to take back ownership of flood risk and pricing – this may drive a lot more focus on property level protection. Rather than restoring a property to its original condition, in areas of high risk we could see use of sensors to alert property owners and their insurance providers to rising water bringing in a new element of live data to understand risk. Basic measures such as moving electrical points higher up walls, fitting flood proof doors may become standard and we may see more onus on the property owner to protect their property from extreme events. Until then, the reliance on ‘live’ geospatial environmental data is only going to grow.
By Richie Toomey, senior manager, Commercial Insurance at LexisNexis Risk Solutions UK and Ireland