Analysts at CoreLogic are forecasting that parametrics and climate-adapted catastrophe models will be key trends for re/insurers in 2022 following another year of elevated losses.
The cat modeller sees parametric insurance in particular as a valuable supplement to traditional indemnity insurance.
“These technologies are perfectly suited to provide insights into the high-gradient perils which are most impacted by climate change, such as flood and wildfire,” analysts explained.
“Insurers will adopt hazard modeling tools into parametric insurance to avoid adverse selection and set rates at a level associated with the risk levels. This will allow insurers to write business previously out of reach while also providing policyholders with fair and transparent pricing of their coverage needs.”
But with 2021 providing further evidence of the unpredictable nature of climate change on catastrophe events, rapid implementation of climate-adapted catastrophe risk models will also be a key priority for re/insurers this year, CoreLogic added.
“Insurers will adopt the next generation of climate-adapted catastrophe risk models to project losses into the future, which will influence the insurance market for years to come,” it said.
Artificial intelligence and machine learning enabled tools in particular will likely be leveraged by re/insurers to continue to learn from past natural catastrophe events to ensure the underlying science is up to date with current conditions.
This should increase the ability to create measurements in the form of probabilities for various natural hazard and climate outcomes.
Other key trends anticipated by CoreLogic for 2022 include the expansion of pricing incentives to better protect policyholders and reduce losses, while also focusing more resources on educating property owners on what kinds of actions they can take to help protect their property.
“As for 2022, only time will tell what natural hazards are in store and it appears nothing is off the table. One thing is for certain – insurers need to prepare for these unprecedented events by committing to open communication with policyholders and understanding all possible risk scenarios,” CoreLogic concluded.
“We expect insurers to equip themselves with the latest insights to stay competitive and provide their policyholders with the best service possible. Ultimately, insurers who provide the fairest pricing to policyholders and incentivize risk mitigation, while protecting against large, often unexpected losses, will build the most resilient businesses – and as a result, increase resilience in impacted communities. “
