The absence of a major landfalling hurricane in the state of Florida and across the U.S. has seen some insurers and reinsurers turn a blind eye to certain exposures, which, combined with the ongoing soft market conditions creates “a perfect storm of its own,” according to Wade Stier, Underwriter, U.S. Property, XL Catlin.
In particular, Stier is referring to damages to pool screen enclosures in Florida, which, following hurricane Wilma in 2005 accounted for as much as 40% of cedants losses. Furthermore, XL Catlin explains that AIR Worldwide, a global catastrophe risk modelling firm, found that pool screen enclosures accounted for between 15% and 20% of insured losses during the 2004/2005 storm season.
But despite the high figures, only 32% of XL Catlin’s Florida cedants capture pool enclosure data in their modelling, which suggests some in the space have a pretty short memory when it comes to U.S. hurricane exposures, likely driven by the fact the region hasn’t experienced a major landfalling event in 11 years.
Stier, explains; “The absence of any powerful landfalling hurricanes in recent years means many insurers writing in storm-prone zones are being less diligent or knowingly turning a blind eye to certain exposures. If you couple this with soft market conditions, it makes for a perfect storm of its own.
“It can be argued that most insurers and reinsurers are leaving out some fundamental risk factors when pricing catastrophe risk, looking only at the top line. We all need to remember what we have learned from previous hurricanes and not forget some important issues when structuring and pricing natural catastrophe risk.”
It’s a valid point, but it’s not just pool screen enclosures that are the issue, with a survey in 2007 finding that of 765 Florida homes a big 28% of total claims from Wilma were from external structures, further supporting the need for protection to be adequate, affordable and effective when the next major storm strikes the region, which is only a matter of when and not if.
“Fast forward 12 years, and it seems like time has gone backwards. Once again pool screen enclosures are on the top of our “worry list” as a reinsurer. We want to mitigate risks such as the ones associated with pool screen enclosures, and place a stronger emphasis on catastrophe risk management at the point of underwriting and inspections,” continues Stier.
According to Stier, the utilisation of technological advances is one of the ways XL Catlin is trying to tackle the trend. The adoption of cutting edge technology and analytics will enable the firm to provide the best data for itself and the cedants it supports in light of “forgotten” exposures surrounding catastrophe risks.
XL Catlin has invested heavily in the InsurTech space, a growing part of the risk transfer industry that is combining advances in technology with insurance and reinsurance market expertise, hoping to innovate and improve the overall efficiency and offerings of the global risk transfer sector.
“The aim of this investment is to provide greater value to our cedants and connect them and new technology which will create better data for better decision making, which will help with more accurate reinsurance purchasing and pricing as well as tracking aggregates,” says Stier.
Stier continues to explain that XL Innovate’s investment in Cape Analytics enables it to use imagery such as drones, aircrafts and satellites to develop comprehensive data on property features, which in turn enables XL Catlin to assist its cedants and the industry as it works to close this particular coverage gap.
“Incorporating a more detailed assessment of catastrophe risk at the point of underwriting helps our cedants make better risk selection decisions, apply the most appropriate rate, and manage exposure concentrations in real time which in turn allows us to provide the proper reinsurance solutions.
“While we cannot predict the future, we can and should certainly learn from the past,” says Stier.