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With natural disasters on the rise and asset replacement costs mounting, insurers face a delicate choice\u2014get out of certain areas or get better risk visibility<\/p>\n
The insurance industry earned a spotlight at the 28th United Nations conference on climate change (COP28) in late 2023. Prominent global figures and business leaders alike spoke to the need for sustainable, equitable access to protection from climate risk. They warned that lapses in personal or commercial insurance could disrupt livelihoods and lines of business\u2014and in turn jeopardize entire economies.<\/p>\n
Recent events underscore the challenge. Over the last 30 years, the annual average for natural disaster losses covered by insurance was $57 billion, according to Reuters. In 2023, the total was $95 billion, according to Munich Re. Insurer Aon pegged 2022\u2019s total at $132 billion. Even more startling: That amount was just 42 percent of total losses\u2014the rest were not covered by insurance. Aon calls that one of the lowest coverage rates on record.Insurers, already adept at understanding local risk and calculating the costs of protection, will need more precise risk visibility to accurately price policies in regions plagued by worsening climate hazards\u2014from deadly heat events in Europe to property-leveling wildfires in North America.<\/p>\n
It\u2019s an urgent, complex challenge, but insurers might already have what they need to tackle it: location technology. Geographic information system (GIS) software, already used throughout the industry to digitally map portfolios and assess property conditions, is also a powerful tool for climate risk analytics.<\/p>\n
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Climate change is problematic for a business model that puts a price on risk protection. Unattainable, unaffordable policies aren\u2019t sustainable for customers or regional economies, and yet insurers can\u2019t bear the costs of new or growing risks without changing their products.<\/p>\n
In Florida, insurers are offsetting flood and storm damage payouts by raising commercial real estate premiums. But as policy prices rise, consequences can cascade. Property owners raise rent for retail customers, which displaces existing businesses, dissuades new retailers from opening, or drives up prices for consumers.<\/p>\n
Such scenarios are playing out around the world. In Cambodia, where farmers generate 35 percent of the country\u2019s GDP, crop insurance protects against worsening floods and droughts. But local insurers are scarce, and coverage can be cost-prohibitive for individual growers, leaving a major industry\u2014and the economy it supports\u2014vulnerable.<\/p>\n
Insurers need a new level of precision in risk analysis to customize policy prices and coverage offerings for hyperlocal markets, even individual policyholders, based on the climate hazards they face. This work is made possible with GIS analysis and modeling.<\/p>\n
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Precise climate risk analysis starts with climate data\u2014increasingly available from public and third-party sources. GIS-based predictive analytics, which models climate data over space and time, can reveal the likelihood of specific threats in specific places and what might happen if disaster strikes.<\/p>\n
Savvy insurers combine climate data with asset data to understand risk down to an individual property, such as comparing a structure\u2019s age and building materials to the type of storm damage it\u2019s likely to face, or evaluating a farm\u2019s annual water usage against heat and drought models.<\/p>\n
Insurers then translate these details into a better customer experience. For one, hyperlocal analysis can produce individualized risk scores, informing coverage and policy pricing that\u2019s tailored for each business and property. It also provides transparency, giving customers information they need to take appropriate mitigation steps\u2014reducing risk for insurers and potentially lowering premiums. Finally, anticipating specific risks and potential damages\u2014and using GIS to track incidents in near real time\u2014helps insurers speed response times on claims.<\/p>\n
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Climate change has global impacts, but those impacts don\u2019t look the same everywhere. Innovative insurers are thinking hyperlocally as they plan and price policies. They are analyzing what kind of climate risks exist, where, and what\u2019s at stake for regional customers if hazards do occur.<\/p>\n
In a keynote at COP28, Howden Group CEO David Howden spoke of the need for governments and insurers to work together to model risk, calculate the costs of protection for the most vulnerable places, and make insurance more accessible and affordable. With GIS technology to analyze and contextualize hyperlocal data, insurers can inform decisions that protect clients, business longevity, and healthy economies.<\/p>\n
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With natural disasters on the rise and asset replacement costs mounting, insurers face a delicate choice\u2014get out of certain areas or get better risk visibility The insurance industry earned a spotlight at the 28th United Nations conference on climate change (COP28) in late 2023….<\/p>\n","protected":false},"author":4,"featured_media":30222,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[89],"tags":[],"class_list":["post-30228","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog-en"],"yoast_head":"\n