{"id":925,"date":"2022-06-08T00:00:00","date_gmt":"2022-06-07T23:00:00","guid":{"rendered":"httpss:\/\/advantagego.local\/optimizing-underwriting-decision-making-for-climate-related-catastrophes\/"},"modified":"2025-03-13T06:22:22","modified_gmt":"2025-03-13T06:22:22","slug":"optimizing-underwriting-decision-making-for-climate-related-catastrophes","status":"publish","type":"post","link":"https:\/\/www.advantagego.com\/en-us\/content\/optimizing-underwriting-decision-making-for-climate-related-catastrophes\/","title":{"rendered":"Optimizing Underwriting Decision-making for Climate-Related Catastrophes"},"content":{"rendered":"\n

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<\/a> reports. Increasingly, insurers must account for more frequent severe weather and environmental events driven by climate change in their underwriting decision-making.<\/p>\n\n\n\n

In the United States, losses from natural catastrophes driven by climate change<\/a> 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<\/a> capabilities can help insurers capitalize on the associated costs of those catastrophes.<\/p>\n\n\n\n

An Opportunity for Insurers and Those They Protect<\/h2>\n\n\n\n

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>. 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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Frequent Catastrophes Render Historical Models Obsolete<\/h2>\n\n\n\n

In a January 2022 report<\/a>, Howden described a \u201csweeping shock\u201d inflicted on the insurance sector driven in large part by \u201cnatural catastrophes and growing concerns about climate change.\u201d 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\u2019s also relevant to note that uninsured \u201cProtection Gap\u201d losses from Cat. Losses continue to increase. As an example<\/a>, 5 in 6 US homeowners do not have flood insurance.<\/p>\n\n\n\n

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. \u201cWe 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<\/a>, where insurers are \u201cbenefiting from rising risk awareness in both the life and non-life segments … [due in part to] above-average natural catastrophes.\u201d<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Two Ways Insurers Can Leverage Connected Underwriting<\/h2>\n\n\n\n

The international research “Geneva Association”<\/a> identifies \u201caddressing gaps in data, methodology and tools\u201d as among \u201cthe many challenges related to conducting climate change risk assessments.\u201d 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:<\/p>\n\n\n\n

1. Insurers Must Leverage New, Dynamic Data to better inform decisions <\/strong><\/h2>\n\n\n\n

\u201cLimited data makes it difficult to isolate what impact climate change will have versus other loss drivers [such as] natural variability,\u201d 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:<\/p>\n\n\n\n