Lead Forensics


Optimizing Underwriting Decision-making for Climate-Related Catastrophes

08.06.22 Simon Fagg

Escalating climate change represents a threat to the global economy and a danger to its people and their property. Globally, 2021 insurance loss estimates from major natural catastrophes reached roughly USD 116 billion – the third-largest since 2011, Gallagher Re reports. Increasingly, insurers must account for more frequent severe weather and environmental events driven by climate change in their underwriting decision-making.

In the United States, losses from natural catastrophes driven by climate change will continue to affect the bottom lines of personal and commercial property underwriters. But while more localized natural catastrophes such as wildfires, tornadoes, and severe thunderstorms are difficult to predict using traditional methods, new data-driven analytics capabilities can help insurers capitalize on the associated costs of those catastrophes.

An Opportunity for Insurers and Those They Protect

Insurers who wish to remain profitable in this new economic environment must use data-driven analytics to help them make better-informed underwriting decisions. A connected underwriting workbench can help insurers do just that: By giving them access to data that is updated in near-real time, they can capitalize on changing market conditions and write more accurate policies.

Here we explore how data-driven analytics can help insurers write more profitable policies in the face of climate change. We discuss how a digital underwriting workbench can give insurers the data they need to make informed decisions, and how this data can help them capitalize on the potential costs of climate-related catastrophes.

Frequent Catastrophes Render Historical Models Obsolete

In a January 2022 report, Howden described a “sweeping shock” inflicted on the insurance sector driven in large part by “natural catastrophes and growing concerns about climate change.” This shock was especially pronounced in the United States, where North America experienced 68% of total global insured loss in 2021, according to Gallagher Re. It’s also relevant to note that uninsured “Protection Gap” losses from Cat. Losses continue to increase. As an example, 5 in 6 US homeowners do not have flood insurance.

Circling back to Insured losses, the extreme weather driving these losses is becoming more prevalent. But for the insurers who protect individuals and businesses from these losses, the right insights could drive an exceptionally profitable historical period as a result. “We are positive on the outlook for global insurance premiums, expecting above-trend real growth of 3.3% in 2022 and 3.1% in 2023,” as Swiss Re Institute describes in its November 2021 report, where insurers are “benefiting from rising risk awareness in both the life and non-life segments … [due in part to] above-average natural catastrophes.”

Even so, insurers face roadblocks to realizing these benefits due to traditional predictive models driven by data from historical losses. Critically speaking, loss history is no longer the single greatest determining factor when predicting future losses; the unpredictability of climate change and its related natural catastrophes has rendered historical methods impractical.

Two Ways Insurers Can Leverage Connected Underwriting

The international research “Geneva Association” identifies “addressing gaps in data, methodology and tools” as among “the many challenges related to conducting climate change risk assessments.” The research organization goes on to make two key recommendations based on its findings. As we will demonstrate, both are made possible by a sophisticated and connected underwriting workbench:

1. Insurers Must Leverage New, Dynamic Data to better inform decisions

“Limited data makes it difficult to isolate what impact climate change will have versus other loss drivers [such as] natural variability,” The Geneva Association describes. Underwriters must access new data sources that better reflect existing and emerging climate-driven conditions instead. This includes near-real time data made possible by connected technologies, including:

  • internet of things (IoT) devices
  • real-time monitoring tools
  • on-the-scene claims-assessment drones

With the right digital tools, these data sources can feed directly into a digital underwriting workbench that converts those data into actionable insights.

2. Insurers Must Embrace Advanced, Data-Driven Analytics

Insurers can make the most of new data sources using data-driven analytics that help them identify risk in near-real time. This data can help underwriters:

  • predict where and when catastrophes will occur
  • identify at-risk policyholders
  • determine optimal pricing for coverage

In these ways, advanced analytics help them write more profitable policies in the face of climate change. “Advanced analytics could further help companies in assessing… assumptions regarding future climate conditions to improve risk selection and pricing,” as Deloitte describes.

Enhanced Underwriting Risk-Selection enabled via a Connected Workbench

A connected workbench designed to enhance underwriting decisions with advanced insights from both portfolio and external real-time data makes this possible. For example, with the right tools, underwriting teams can:

  • fully integrate the management of net exposure and catastrophe response assessment
  • provide deterministic net accumulation assessments from the risk to portfolio level
  • dynamically adjust portfolios to risk appetite
  • monitor key accumulations as they relate to individual geographic hazards and collectively across multiple lines-of-business

When underwriters and portfolio managers access advanced insights at the point of underwriting, they can optimize their portfolios and risk selection processes with the confidence that those insights reflect not only historical models but instead real and likely conditions that consider forward-looking impacts of Climate Change.

Insuring Responsibly in a New Age of Risk

Insurers have a unique role to play in the age of climate-driven catastrophes, where their own fiscal responsibility must continue to coincide with the financial protection and trust of their customers. That’s why insurers need accurate insights, made possible by connected workbenches that optimize underwriting processes and results.

Introducing AdvantageGo, an Underwriting Workbench that drives deep insight in risk assessment

AdvantageGo provides an industry-leading Underwriting workbench for experienced underwriters who wish to augment their risk assessment with advanced, data-driven analytics, thereby enhancing key rating decision-making. Featuring “no-code” configurable components and native widgets that integrate seamlessly into existing digital environments. The Workbench drives harmonization of workflows from unstructured submission ingestion from Outlook through submission rating/quoting through to policy binding. AdvantageGo provides underwriters with the tools to address climate-driven risks and support their digital future.

If you would like to learn more or schedule a free demonstration, contact us directly today.

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