Climate Risk Brings Insurers and Insureds Closer Together

This latest piece is by Matt Carter, Specialty Markets Director at Altus Consulting and it looks at the potential impact that the Build Back Better program can have following Cat events.

As we know the impact of climate shows no signs of abating, and so increasingly is affecting more insurers and insureds, given the rise of insurers looking to help their insureds both predict and prevent claims. Gone are the days of most insureds being happy with a purely indemnity based solution. What is being done to protect infrastructure most at risk of climate changes and events?

Flooding has been one of the major perils to be impacted by climate events and Flood Re have acknowledged that their Build Back Better programme, which has to date been signed up by 65% of insurers, is a real support initiative for the effects of climate related events. There remains a third uncommitted with their customers left at a disadvantage, so what could insurers being doing inside or outside of this programme to support their insureds in the face of rising climate related events?

Insurers used to see catastrophes as 1 in 50 or 100 year events – now, mostly due to climate change, these events are more regular. Whilst the quantum individually is often smaller, the frequency by which they occur makes the impact greater, both to insurers and insureds.

With the Build Back Better programme, having access to make a terrible event (a flood) somewhat more palatable if and when it occurs again does seem to be of real value. It also acknowledges that these “once in a generation incidents” are events we are now going to have to live with and manage, as eradicating them is nigh on impossible.

Technology is playing its part

There is a growing and highly accurate body of technology providing geo-location assessments and likely impact of climate related events, floods, winds, wildfires and hail etc. HazardHub, ZestyAI, Verisk, Corelogic and Whenfresh to name a few operate in this space. But knowing where assets are impacted or are at risk is different to preventing or mitigating the loss at the point of incident. Knowing the impact of potential climate related risks and the severity can however be used to focus the monies, efforts and minds of those most likely at highest risk.

This brings us back to what insurers can do to support vulnerable insureds, with technology, available from monitoring and alerting through the likes of Previsico for flood or Hailios for hail, or sensors available via Floodflash to property assessment for fire risks. There is a growing range of alert mechanisms, so insurers can help their insureds be on the ‘front foot’.

This technology should be combined with physical changes that could or should be implemented to a susceptible risk, such as installing flood doors, moving electric points above a national flood lines, or using more fire retardant materials. As a result. there are incentives for Risk Mitigation as it both improve building resilience and reduce potential losses. These can come in the form of access to technology, grants like Build Back Better or discounts (or negative discounts by virtue of having not implemented).

Requirements for an insured to take loss mitigation activities has always been within the insurance small print, but with the impact of climate risk, these activities are no longer the equivalent of putting locks on windows – and are instead more like putting bubblewrap around your car. It is genuinely useful and vital but can be expensive. Support from schemes like Build Back better really will help.

So whilst technology can mostly support prediction and alert, thereby helping insureds take preventative measures, the path that initiatives like Build Back Better are supporting is one of a much more joined up and engaged relationship between insureds and insurers. One that has real common ground and is valued by both parties. This is the type of engagement insurers have been seeking for years with their insureds and a true positive to come from supporting insureds who have assets particularly at risk of climate related events.

So technologies, when combined with appropriate risk management strategies and building practices, can contribute to the resilience of buildings and communities in the face of climate risks. It is a collaborative and connected relationship that will both drive loyalty and reduce the impact and ultimate cost of such events for all parties. And one that can’t be ignored.