Amy Currotto was concerned about adding "climate change" as a major trend to a panel discussion at the Florida Association of Public Insurance Adjusters' fall meeting. She thought that some in the audience would get emotional and significant reactions to the fact that she raised the issue. I have been to four other public change conferences this autumn, and "climate change" has come up on each of them. For example, at the RAMPIA meeting in Denver, the Colorado Insurance Commissioner indicated that the frequency and severity of forest fires have increased due to climate change, prompting new initiatives to help keep insurance available and affordable.
The insurance industry is quite transparent about climate change that has a significant impact on its operations and emissions guarantees. Changing risks of losses caused by climate-driven weather patterns are studied by newer technologies and then reflect decisions on insurance prices and where insurance companies will make their products available.
An article published in Insurance Journal, Risky Business: Climate change sets heaters for insurers , policyholders stated that:
There are thousands of homeowners and businesses from California to Australia in a similar situation [not being able to find insurance cover] because the insurance industry, known for its readiness to cover everything from Bruce Springsteen's vocal cords [ sic
The proven approach, in which decades of historical data serve to estimate future claims, fails when weather patterns change and hurricanes, floods, heat waves or extreme snowstorms unpredictable, says industry experts. And the British hosts of the UN climate conference in Glasgow acknowledged on Wednesday that current promises to reduce greenhouse gases were not enough to avert the climate catastrophe.
"Insurance companies withdraw because no one wants to be in the industry because to lose money, says Attila Toth, CEO of the specialist research firm Zesty.ai. "And if they do not trust their traditional models, then they are worried that they will lose money."
track and determine the impact of climate change on the risks they insure.For example, in a 2020 study, Catastrophe Modeling and Climate Change by Lloyd & # 39 ;s, stated its summary:
Scientific research definitely points to the prevalence of climate change driven by human activity, yet there is considerable uncertainty about the nature and extent of the changes in our climate and the specific effects it take will generate. Many of the effects will become apparent in the coming decades, and predicting them will require forecasts, not just historical data.
Climate change and weather patterns have the potential to affect extreme weather events. Insurance companies have a key interest in understanding the impact of climate change on the frequency of extreme weather events. The frequency of heat waves has increased in Europe, Asia and Australia and more regions show an increase in the number of heavy precipitation events than a decrease. It is almost certain that the frequency and intensity of the strongest tropical cyclones in the North Atlantic Basin have increased since the 1970s.
Disaster modeling technology is now widely used by insurance companies, reinsurance companies, governments, capital markets and other financial entities. They are an integral part of all organizations that deal with natural disaster risks and are most often used to perform activities such as risk selection and emission guarantees, reservations and pricing, development of mitigation strategies, design of risk transfer mechanisms, exposure and aggregate management, portfolio. optimization, pricing, reinsurance decisions and capital setting. The models help quantify our understanding of the natural world.
Trends in climate change may implicitly be embedded in disaster models, given the widespread use of historical data to construct them; however, these TRENDS are not necessarily explicitly incorporated into modeling output. Uncertainties associated with the estimation of the extent and frequency of the most extreme events mean that the impact of climate change may be difficult to take into account in risk models.
The sensitivity of hurricane losses is affected by a number of factors related to climate change. , such as rising sea levels and sea surface temperature. There is a connection between sea surface temperatures and hurricane strength, which indicates a gradually increasing trend. It is therefore imperative that changes in these be modeled correctly.
The approximately 20 centimeters rise in sea level at the southern tip of Manhattan Island increased SUPERSTORM Sandy's wave losses by 30% in New York alone. Further sea level rise in this region may non-linearly increase the loss potential from similar storms. Disaster models that dynamically model wave waves based on current Mediterranean levels already include this increased risk in their forecasts.
Climate models continue to project effects on extreme weather in the coming decades. EQECAT shows how future climate scenarios can see increases in the frequency of intense storms in Europe, with a possible shift of the storm path to northern latitudes. The JBA notes that climate change has already increased the likelihood of flood events in the UK like those that occurred in 2000, and a rain event of 1 in 5 could be 40% greater in the future. ”
These models use artificial intelligence and visual satellite observation to quickly capture up loss data, which is entered into actuarial and actuarial analyzes to a region- and site-specific risk. RMS noted that this technology on its website:
A critical part of reducing that uncertainty, removing these assumptions and improving risk understanding is combining site level data and hazard information. That combination provides the database to quantify the risk in a systematic way.
To understand the direct relationship between risk or danger and exposure, site-level data are required. The potential damage to a site caused by flood, earthquake or wind will be significantly affected by factors such as the height of a building on the first floor, distance to fault lines or underlying ground conditions to the quality of local building regulations and structural resilience. And much of the granular information is now available and relatively readily available.
"Within two days of Hurricane Laura hitting Louisiana in late August 2020," says Rahnama, "we could have assessed the roof damage. over 180,000 properties by applying our machine learning capabilities to satellite images of the affected areas.We have "trained" our algorithms to understand damage level variations and can then overlay wind speed and event footprint to group the damage levels into different wind speed ranges.What it also meant was when the hurricane Delta affected the same region weeks later, we could see where injuries from these two events overlapped. "
From a positive point of view, measures to reduce and mitigate losses before disasters can be better studied and implemented. From a negative point of view, the merging of similar Loss risks are more of what insurers did in the past, because they can now assess the risk more on an individual basis. This leads to some policyholders "picking out" and handing over others to state-supported risk pools. Police officers with grants with wider coverage will be given to those who run the least risk and narrow coverage to others. Thus, the problems with cover gaps, which I discussed yesterday in the State Farm New Policy Notice in California, should apply to everyone in the real estate insurance industry — one example is the new valuation language, because these more sophisticated models merge with machine-made insurance guarantees.
The profit effect for those in the area who have to do with policyholders is significant. For insurance agents, coverage will continue to change frequently, and you will need to study insurance forms much more than before. You will have many facing increasing premiums while others may have little choice in what type of insurer will provide coverage at any price. You will have customers with significant coverage gaps because insurance forms will have more "choices" to choose to accept what was previously standard insurance for all-risk compensation costs.
For property adjusters, the insurances will vary considerably between forms even within the same insurer. Policyholders who want to be able to afford coverage can buy "cheap" insurance with significant gaps in coverage. Deductibles will increase when policyholders in high-risk areas try to find ways to pay for necessary insurance. As a result of rising premiums and current construction increases, some may not write insurance to value to keep premiums lower, and co-insurance fees will be a furious topic. Non-mortgage policyholders will be tempted to go naked.
Restoration contractors will increasingly discover that the insurance purchased to pay for losses will only partially do so. Policyholders will need loans to finance what the insurance used to pay. Immediate repairs may only be made on the most critical areas of structures until funds to fund compensation have been found.
This sounds so negative for a Friday blog.
Thought For The Day
] Climate change is going faster than we do, but we do not give up because we know that climate action is the only way.