Profiles & Interviews

Collective action, not sandbags, can limit rising extreme weather damages

Insurance Wire speaks with LexisNexis’ Richard Toomey to decipher rising ‘secondary perils’ and what can be done to limit their impact on the industry

Fires in the US and Southern Europe, heatwaves in Canada and Siberia, and heavy flooding in Northern Europe and China. These are a selection of the recent or continuing extreme weather events that have besieged the planet since the start of our fledgling decade. “These events are just happening more and more frequently,” says Richard Toomey, senior manager of commercial insurance at LexisNexis Risk Solutions UK and Ireland. “There are more serious events, they’re happening more frequently, and the impact that is having on insurers is the amount of claims that are paying out.”

The figures back Toomey’s statement, with Aon reporting that in 2020 natural disasters cost global insurers $97bn (£70bn). Toomey also claims that 2020’s storms Ciara and Dennis reached 360 million claims, with the full extent not making itself apparent until “a year or two years later”.

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Yet, it’s not only the quantity of these events, but their locations that are causing particular issues. Toomey highlights the heatwaves that have hit Canada and Siberia, and the risk of flooding this can cause elsewhere as moisture is put into the atmosphere. “Even when you have defences, even if you haven’t built on floodplains, you are still going to have issues with this torrential downpour,” he says. “Your soil, your defences, your channels and river channels just can’t handle that amount of water that is coming down.”

Vitally, Toomey adds that these one in 100-year or 200-year events “are just happening way more frequently”. Simon Welton, market head of property and casualty, UK and Ireland, at Swiss Re, categorises the events as “secondary perils”. Covering flooding, thunderstorms, hail, and wildfires, these secondary perils “can affect anyone and lead to human tragedy in all parts of the world”, says Welton.

But what can be done to limit the damages of these increasing events? 

Evidently, those first affected are consumers, both commercial and individual. While Aon noted that insurers lost $97bn (£70bn) to natural disasters in 2020, that is just a splash in the ocean to the $268bn (£194bn) of economic losses caused in the same period – a global protection gap of 64%.

Initially, Toomey points to the documentation available for consumers and commercial consumers through the likes of the ABI and insurers themselves. He also points out the continued use of “resilient pieces of work”, such as sandbags for areas that are prone to flooding, and more fixed defences including embankments. 

Yet, the reality is that this obviously does not go far enough.

Toomey also suggests the role that real-time data can play for insurers in the face of these secondary perils. He describes LexisNexis as a “data agnostic” company that can support insurers in understanding what areas are at risk of flooding, for example, and what the particular level of risk exposure is. 

One way this is achieved is through the group’s Map View service. As a geospatial platform, LexisNexis’ Map View shows insurers “where your risks are”. Toomey says: “We will have an insurer’s policy book embedded into the application, and so we know where their live policies are. As soon as an insurer writes a new business that record will be geo-located.

“Then we bring in a number of hazard layers, like flood hazard layers, subsidence, and crime –  it could be any type of risk – and we overlay that onto a map so insurers know where their locations are.” In turn, Toomey adds that risks of certain areas can be calculated to their frequency, so that insurers “know where their exposures are”.

Even then, with global catastrophes on the rise, this linear line of action can be deemed as insufficient. There needs to be collaboration.

Welton says: “All of this highlights a need for government agencies, insurers and insurance associations to work more closely together to raise risk awareness, put in place more comprehensive claims monitoring and share that information with all stakeholders where legally permissible. Re/insurers, meanwhile, can support open-source loss modelling frameworks for risk assessments closer to emerging local trends.

“By spreading insurable risk on more shoulders, governments and the insurance industry can create more efficiencies and strengthen resilience in the face of a global risk pattern – with reinsurers in particular playing an orchestrating role.”

For Toomey, his outlook is shaped by the Olympics, having been lightly reminded of Team GB’s performance in relation to his native Ireland prior to the interview. “We spoke about the Olympics earlier, about funding and what funding can do to help improve your athletes and your medal take, it’s the same kind of thing,” he says.

Moreover, much like the medal winners of Tokyo 2020, funding needs to be matched by preparation. Using the case of flooding throughout the UK, Toomey asserts that “we have to put funding into this in order to improve it”, but he adds that “we’re still building on floodplains”.

He says: “We’re still doing this and the water has to go somewhere. Even if you put in a defence it is stopping the water going in a particular area, but it’s going to drive that problem further down to somewhere else. So, we need to have better planning, and that just hasn’t happened in the last 10 or 20 years in the UK – or in Ireland for that matter.”

At a time when the UN’s Intergovernmental Panel on Climate Change (IPCC) has spelled a “code red for humanity”, with “unequivocal” evidence “that human influence has warmed the atmosphere, oceans and land”, it seems these extreme weather events will only continue to rise.

To limit the fallout from secondary perils, it is clear that a collaborative and swift effort is necessary. Action from insurance firms, consumers, and governments alike will be pivotal in protecting both individual and commercial clients, as well as the insurance industry itself, from the damage that lies ahead.

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