One of the biggest issues facing CAT insurers is assessing risk in an uncertain future. As catastrophic storms increase in number and intensity, CAT insurers must prepare accordingly. Specifically, the increasing number and intensity of hurricanes in the Atlantic Ocean and Gulf of Mexico require insurers to find innovative ways to assess risk and address underwriting challenges. Over the past thirty years, insurers have been forced to adapt policies to fit the changing world. This has included the development of new or different exclusions and deductibles. For example, courts have upheld exclusions or specific deductibles for named-storms, off-premises power failure, and civil authority, among others. Williams v. Republic Fire and Cas. Ins. Co., 424 Fed. Appx. 304 (5th Cir. 2011) (applying named storm deductible); Red Bird Egg Farms, Inc. v. Penn. Mfrs. Indem. Co., 15 Fed. Appx. 149 (4th Cir. 2001) (applying off-premises power failure exclusion); Penton Media, Inc. v. Affiliated FM Ins. Co., 245 Fed. Appx. 495 (6th Cir. 2007) (applying civil authority exclusion). These kinds of exclusions and deductibles were first developed by insurers after Hurricane Andrew devastated Florida in 1992 in order to keep insurance coverage available and affordable.
But tailoring policy deductibles and exclusions is only part of addressing risk. Utilizing more accurate methods for predicting storms would help CAT insurers better analyze long-term exposure. This is an uphill battle, however, as predicting the weather is still not an exact science. If only we had the ability to predict the future (see Back to the Future Part II). Presently, seven-day forecasts are accurate roughly 80% of the time, after which the reliability drops off considerably. Long-term predictions are even less reliable. Generally, where there is a need there is opportunity, and there is no exception here.
Recently, Spire Global, a U.S.-based space-to-cloud analytics company, has taken on the task of solving this problem. Spire Global announced that it is now collecting atmospheric profiles that it can use to increase the accuracy of weather and climate forecasts. The atmospheric data samples that Spire Global is collecting amount to triple the amount of similar information currently available worldwide. This technology will be especially helpful in predicting the formation and intensity of future hurricanes. The data will be available to any startup, research institute or public agency in the European nation, thanks to Spire Global’s agreement with the Luxembourg Space Agency. As many CAT insurers are based in Europe and have research institutes, this is a prime opportunity for them to make use of what could be a foundational pool of data. This will have a trickle-down effect as many of these companies insure property in the United States. In utilizing this data, CAT insurers may be able to develop more reliable models on which to base rates and coverages while remaining safely in the eye of the metaphorical hurricane.
Post by Eric Grogan
