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Climate disasters push insurers to rethink risk models

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Addressing climate change has become a top priority with insurers; after being hit hard in 2021 with a string of natural disasters, insurance experts are being challenged to quickly find ways to mitigate the extreme weather crisis. 

  • According to the National Oceanic and Atmospheric Administration (NOAA), the U.S. sustained 20 weather and climate disasters that sustained losses of at least $1 billion in 2021.
  • CoreLogic reported 1 in 10 U.S. homes were impacted by natural disasters, totaling nearly $57 billion in property damage. 
  • According to Aon, global insured losses in 2021 reached $130 billion, which was well above the 21st century average of $74 billion, and 18% higher than 2020. Total losses resulted in more than $343 billion in economic damage. 
  • Insured losses in the U.S. in 2021 were 108% higher than average ($44 billion) and 227% higher than the median ($28 billion). 

Due to the increase in severity of these extreme storms, insurers are realizing that the risk models they built just three to five years ago aren’t holding up. This in turn puts more pressure on reinsurance companies to be able to insure risk and puts more pressure on homeowners to pay up. In addition, several carriers are pulling out of high-risk areas, leaving homeowners uninsured and unable to find coverage.  

According to meteorologist and head of Catastrophe Insight at Aon Steve Bowen, as more communities are exposed to increasingly volatile weather conditions, organizations and governments need to look forward and find ways to “include sustainability and mitigation efforts to navigate and minimize risk as new forms of disaster-related volatility emerge.” 

The gap between protection and innovation when it comes to climate risk will only widen unless we find new technologies like artificial intelligence and predictive models that can quickly develop data and learn to accurately map the impact of a changing climate, and in turn offer next steps for those at risk. 

Some carriers have already modified and developed predictive tools and started to adjust the way they approach extreme weather events: 

  • Munich Re developed a risk scoring tool that provides users with a view of location-specific exposures and created a flood and wildfire-specific product. 
  • Travelers uses aerial imagery and deep machine learning to accelerate damage assessment and claim resolution right when catastrophes happen. 
  • Verisk launched its Inland Flood Model, which estimates losses from non-hurricane precipitation flooding, storm surges and levee breaches. 
  • Karen Clark and Co. is developing a climate future catalog that offers projections out to 2025, 2030 and 2050 to get a view of what risks could be coming and what an area’s loss potential could look like. 
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