Recent, devastating hurricane and wildfire seasons have served to highlight just how vital catastrophe risk modelling is in preparation for the upcoming season, according to Mark Anquillare, Chief Operating Officer & Group President, Verisk.
In a recent interview with Reinsurance News, Anquillare discussed what insurers and reinsurers can do to help them better prepare for the hurricane and wildfire season.
“Unfortunately, these hurricane and wildfire seasons are already noteworthy as a severe drought grips the western United States and NOAA has predicted another above-normal hurricane season,” Anquillare explained.
“AIR models suggested, 2020 indeed delivered an above-average hurricane season. Even if basinwide activity is again high in 2021, there is no strong correlation between how many hurricanes are generated in the Atlantic and how many will make landfall, or what the losses will be,” he continued.
He noted that elevated year-to-year variability means that carriers require a stable, long-term view of the risk.
To assist with this, re/insurers are able to leverage the forward-looking power of catastrophe models, which, as noted by Anquillare, will allow them to accurately price hurricane risk and design incentives to strengthen the resilience of both homes and businesses.
“Extreme event models provide reliable and detailed information about potential wind, storm surge and precipitation-induced flood losses before they occur, as well as the ability to differentiate these risks at a granular level,” said Anquillare.
“Additionally, all stakeholders need to realize we are experiencing unprecedented inflation and supply chain issues impacting the price and availability of building materials and labor, which will continue to expand throughout both hurricane and wildfire season – at least through this year,” he added.
Interestingly, Anquillare went on to explain that much of this issue is related to the COVID-19 pandemic and the current boom in new construction owing to housing shortages.
“The net result should we have an active storm season as predicted will likely be both a further inflationary trend, as well as a significant impact in the time to complete repairs,” said Anquillare.
The rise of advanced technology and advanced data and analytics is often discussed in the risk transfer world as a means to greatly improve services and importantly the understanding of risk.
Commenting on how data services can help make better decisions around these perils, Anquillare stressed how the importance of good data cannot be overstated.
“Poor data quality can result in a miscalculation of risk that affects the bottom line. But essential tasks such as cleansing, validating and even modelling data can drain valuable resources,” he explained.
“By leveraging data services, re/insurers can more rapidly identify and react to developing trends while focusing on what’s important – effective risk management strategies and growth opportunities.
“Our customers successfully leverage Verisk’s vast data sets to improve risk and property characteristics. We use artificial intelligence (AI) and machine learning (ML) for automating claims and data validation, as examples. By doing this, we significantly increase the accuracy of the data during translation from one format to another, empowering our customers to make better decisions,” he said.
Anquillare went on to explain how exposure data is key, as worldwide, property-specific data provides greater insight and accuracy to property-specific characteristics.
Industry exposure databases are able to provide the foundation for all modelled industry loss estimates and can also provide breakdowns of all insurable properties by line of business, as well as replacement values and policy conditions by coverage for each ZIP Code, explained Anquillare.
“As an example, many companies use industry exposure from AIR, a Verisk business, for benchmarking their exposure to better estimate the vulnerability of unknown exposure and assess real-time losses,” he said.
Hazard data also contributes to a higher-resolution view of risk and a deeper understanding of where increased danger lies. And Anquillare explained to Reinsurance News how up-to-date, ZIP Code-specific data on the cost of building materials, labour and equipment can also play a key role in gauging risk and setting reserves in the event of a significant catastrophe event.
To end the discussion, Anquillare noted the importance of having high quality data when helping re/insurers prepare for their hedges for the forthcoming peril seasons.
“In a recent survey, only 26 percent of data workers reported their data is completely accurate. The quality of the exposure data going into the model impacts the output of the catastrophe model being used to assess the risk.
“To put it simply, the reliability of catastrophe modelling output is only as good as the quality of exposure data.
“And when losses do occur, implementing data-driven solutions to assist with triaging, loss assessment, and fraud detection will streamline catastrophe operations and deliver fast settlements to affected policyholders,” he said.