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importance of location risk scoring

The importance of location risk scoring

Hurricane Ida struck the Louisiana marshland coast 60 miles south of Central New Orleans and passed 25 miles West of Central New Orleans on the 29th of August 2021, 16 years after Hurricane Katrina passed 30 miles East of Central New Orleans. A strong cat 4 hurricane striking at almost the same time and place but causing significantly different loss and damage type. While Hurricane Ida’s final insured loss toll will not be known for some time yet, it will nevertheless be a significant one for the industry in several ways. 

These two events highlight the difficulty for Underwriters in assessing hurricane and storm surge risk. Two seemingly similar events affect the same general area (central New Orleans) but result in very different loss patterns, particularly at the individual risk level.  It highlights the importance of understanding precise location risk and hazard.

The availability of high-resolution location risk scoring, utilising a breadth of high quality Hazard (current and future), vulnerability, and property attribute enhancement, has made the ability to access that data essential for Underwriters in ensuring they retain their competitive advantage.  Finding acceptable new business that others won’t write, declining risks others are seemingly clamouring to write, and growing portfolios at acceptably profitable levels need science and technology to supplement the skill and art of underwriting.

The ability to quickly and easily locate a risk’s true location, validate that location and the risk attributes, understand the hazard there (and nearby) and draw invaluable insights from a plethora of data, allowing quick, intelligent, and advantageous decision-making is a key differentiator for Underwriters looking to triage an otherwise incomprehensible number of new submissions arriving daily. The interaction of technology and data enables the more enlightened Underwriter access to millions of hazard data points a day in a simplified, easy to understand and implementable form, to an extent I could only have dreamed of when I first sat at the box in Lloyd’s 30 years ago.

Back to Hurricane Ida, it’s comforting to know that the storm did not result in the largescale flooding that we saw in 2005. Any Underwriter writing property risks in New Orleans using up-to-date storm surge hazard and scores will have understood the complex surge risk and acted on invaluable insights provided by the wealth of hazard data available today at the touch of a button or drop a pin on a map.  How many Underwriters would also have accounted for severe flooding in the North eastern states resulting from a Gulf landfalling Hurricane, unless they were using some of the advanced data sources provided in risk scoring applications?

Applications allowing hazard scoring and visualisation of not just a single but multiple hazards and providers, from various best-in-class providers, would have seemed like the preserve of large insurers and reinsurers with big research and development and actuarial pricing teams.  But today’s technology makes these available at the touch of a button or through fully automated using API suites to small and medium-sized carriers and MGAs.

What's more, understanding the catastrophe risk today is no longer sufficient. For climate-related risks such as wind, storm, flood, hail and wildfire, climate disclosure regulation such as Task Force on Climate-related Financial Disclosures (TCFD) means that any potential change in the hazard in the future should now play an important part in shaping and optimising any portfolio of risk.  If Underwriters aren´t adapting fast enough to the changing risk landscape, they will quickly be left behind, undercharging for increasing risk as they adversely selected against. But of course, climate change is a whole topic in itself.

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