Tag Archives: hazardhub

Underwriting Wildfire Takes Extra Care

This is part 2 in a series. You can find part 1 published here.

An increasingly volatile recipe of climate change and urbanization means that the past is no longer representative of the future when it comes to wildfire risk. Insurers can’t rely on previous wildfire seasons or events to inform future strategy. Just as every wildfire is unique, there simply is no one-size-fits-all approach to underwriting this risk. If you’re going to write wildfire risk in the U.S., and particularly in the West, then not only must you concede to assuming some level of risk but you must implement a more strategic approach. Savvy insurers know this, and that’s why they’re reaching out to solutions providers, brokers and data companies to help them develop a new game plan for a risk that’s 90% caused by humans and 100% variable. 

Back-to-back years of catastrophic wildfires raise the question: When will wildfires cease to be historic on an annual basis? According to GenRe, the severity of wildfire events is likely to continue. Its research reveals that it’s not so much the frequency of events (with the number of wildfires being fairly consistent since the 1980s), but the size of the event, with megafires an emerging trend: 

“Thinking of 2017 and 2018 as ‘1 in 20’ events may seem extreme; thinking of them as ‘1 in 5’ is almost too frightening to accept. No one knows the right answer, but we believe that long-term historical answers are unlikely to be the right ones.” — Ira Kaplan, GenRe 

So, how can insurers confidently underwrite wildfire risk when the cards seem stacked against them? Answer: By implementing a more innovative and strategic underwriting approach. 

My role as director of data products for Insurity’s SpatialKey solutions focuses on helping insurers explore new avenues to reduce wildfire risk and identify opportunities by applying smarter data and analytics. Our data partners continue to push the envelope by developing savvier ways to analyze risk by examining past behavior. For example, California’s megafires, including Tubbs, Thomas and of course the Camp Fire, which devasted the town of Paradise, have brought to light a few strategic considerations:

A single score is not the be-all-end-all

“It’s all about finding good risks in bad areas,” according to Clark Woodward, CEO and founder of RedZone, an innovative wildfire modeling company. “Wildfire is difficult to model because there are so many factors such as urbanization, a rapidly changing climate, increasingly intense fire behavior and the unpredictability of where fires ignite. This means insurers need to move away from a single score, which does not accurately encompass the complexities of fire risk. You’re going to be much more likely to be surprised if you are relying on a single number.”  

We’re seeing more of our partners, such as RedZone and Willis Re, bring data to market that tells a more complete story. For example, RedZone’s “correlated risk zones” data supports both underwriting and portfolio-level analysis by enabling risk analysts to identify communities or regions that may be many miles apart but could be affected by the same event. These regions, statistically, burn together even though they are separated by natural breaks (i.e. highways, ridgetops, rivers). The zones help insurers identify risk based on fire behavior and characteristics.

Reinsurance broker Willis Re is applying an innovative wildfire risk score underwriting methodology that also helps clients understand areas that are driving up probable maximum losses (PML) to help diversify portfolios and drive reinsurance costs down. This solution enables carrier clients to make more informed rating decisions while considering the hazard level of the new locations and the associated impact. As Vaughn Jensen, executive vice president at Willis Re, explains, “California’s recent wildfires illuminated that many carriers do not have a good handle on their wildfire risk, in no small part because existing industry models do not accurately represent the hazard.”

See also: Wildfire Season Off to Perilous Start

More data points need to be taken into consideration 

Layering HazardHub data, such as distance-to-fire-station and distance-to-hydrant, with another wildfire model can provide insurers with a more comprehensive understanding of wildfire risk, especially when visualized within a geospatial analytics solution that provides contextualization of the surrounding landscape. For example, visualizing wildfire risk in combination with data points that answer the following questions is critical to understanding the big picture: 

  • What’s the proximity to the nearest fire hydrant?
  • What’s the proximity to the nearest fire station? 
  • What’s the proximity/access to the nearest road(s)? 
  • Is there evidence of active tree clearing and mitigation efforts surrounding the structure(s)? 
  • What’s the loss type (i.e. direct, embers, smoke) and intensity?
  • What’s the construction type and year built (likeliness to burn)?

The above underwriting report includes critical fire station data from HazardHub along with the relative risk score of the peril itself from Willis Re. This combination of data points helps to contextualize and price risk in a single view.

Bringing it all together for a more strategic and informed view of wildfire risk

Multiple data points, and even multiple models, should be used collectively for more informed and strategic wildfire risk assessment at the point of underwriting. It’s imperative that wildfire risk isn’t assessed with a single model or single score, which is why I’m dedicated to facilitating a more open ecosystem where our P&C clients have access to multiple sources of expert data.

Equally important to leveraging new data sources is the ability to readily access them and use them to make informed underwriting decisions based on your risk appetite and in the context of your existing portfolio data. Making data easily accessible to decision-makers, along with enhanced analytics, will be the defining difference between companies that succeed with wildfire risk and those that fail.

Harvey: First Big Test for Insurtech

As Hurricane Harvey finally relents, the insurance industry is about to experience the flip side of a famous line from Warren Buffett. Talking about how investment portfolios shouldn’t be judged in good times, Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.” Well, with the rain and the rain and the rain that Harvey inflicted on Houston and surrounding areas, we’re going to get to see who in the insurance world can swim.

That question will take two forms, one that we’ve seen in every disaster since time immemorial, but the other a new one, about insurtech.

The normal one is about whether insurers will perform in their moment of truth, or whether we’ll find the kinds of dubious decisions by adjusters and faked engineering reports that led to improperly denied claims and gave insurance a black eye after Superstorm Sandy.

In the case of Harvey, the question for the industry is, essentially: Do insurers want to be Joel Osteen or J.J. Watt?

As you may know, given that he’s all over TV, Osteen is the senior pastor at a megachurch in Houston who was mocked on social media for being slow to open the doors of his “prosperity gospel” Christian church and provide shelter and aid for those displaced by the hurricane. He says that he has been maligned and that he was always ready to help, if the city had asked, but his many critics have noted that nobody had to ask Houston’s mosques to open their doors and made Osteen the king of memes this week. Osteen is damaged. The only question is how badly.

On the flip side is J.J. Watt, the all-everything defensive lineman for the Houston Texans. Very early in the storm, he made a personal pledge of $100,000 and asked for others to kick in, stating a goal of $200,000. Well, his sincerity and concern went viral, drawing donations from tiny to huge, from Drake to Walmart. Last I checked, total donations exceeded $20 million. With the waters receding, Watt and teammates will be personally going around the city, delivering water, clothing and everything else he’s bought to hand out. He could run for king in Texas, and nobody would get in his way.

While acknowledging that insurance is a business that has no obligation to pay more than it owes policyholders, I think the choice is clear: Be like J.J. Watt as much as you can. Don’t be Joel Osteen.

See also: Harvey: Tips to Avoid Claim Issues  

The new question is trickier. The insurtech movement has been around for a few years now, but Hurricane Harvey is the first true catastrophe that has happened during a time when the insurance industry is laying a claim to innovation. (For good measure, Typhoon Hato has been hammering Macau and Hong Kong at the same time.)

We’re about to find out how innovative we really are.

Some companies are following the traditional playbook and dispatching armies of adjusters to the afflicted region. But we’ll also see the skies filled with drones and will learn how effective they can be at documenting the damage and how much their work still has to be supplemented by humans.

We’ll learn a lot about the “gig economy” and whether part-time workers, such as the “Lookers” provided by WeGoLook, can efficiently supplement the full-time insurance workforce, speed the process of claims and slash away at the costs of sorting out a full-on disaster.

Supposedly, insurtech is letting everything happen faster. Startups such as ViewSpection and MondCloud provide for self-service on claims, letting individuals send photos and videos and allowing insurers to do triage and pay easy claims quickly. But reality may intrude.

Every time I see a photo of some aid facility and spot a sign saying “Free legal services,” I want to applaud those who are helping the injured pro bono, but the cynic in me sees lawyers fishing for clients. I suspect that the hurricane is a full-employment act for every recent law school graduate in Texas. The lawyers, of course, have a vested interest in avoiding quick settlements, so they can work the insurers, take thousands of cases to court and perhaps find some lucrative class actions.

Insurtechs, meet lawyers. We’ll have to see how that goes. I don’t often bet against the lawyers.

Insurers have begun using chatbots, such as Pypestream’s, in their call centers, which should help handle the deluge of calls that will come in from customers and allow insurers to contact customers more often and more effectively to keep them up to date on the progress of claims. We’ll have to see how insurers do about handling customers’ concerns in these hours and days and weeks of need, as well as what role technology plays.

Better data and analytics, sometimes powered by AI, are supposedly making us all smarter about mitigating risks, underwriting and everything else, but it’s easy to congratulate yourself on being smart when you don’t face a test.

In the real test — accuracy — I’d say insurtech startup HazardHub wins early points for putting out an analysis right before the storm saying that $77 billion of property was at risk in Houston, quite a bit higher than other estimates I saw – though lower than some estimates now circulating, and damage estimates always seem to grow, never diminish.

We’ll see whether the powerful new analytics let any company in particular get away from the risks in Houston – keeping in mind that ProPublica identified the particular risks in Houston, because of lack of restrictions on real estate development, in a story published last year. If the journalists could spot the risks, how did the insurers do?

The verdicts will take weeks and months to come in, because the damage has been so extensive and because problems are still developing in what continues to be a stew of mold, fetid water and chemicals. But we’ll get a sharp sense of where innovation has, in fact, happened and where it needs to go – if we keep our eyes open, evaluate the results honestly and take the lessons seriously.

There’s one other question that needs to be answered, too, this one on the government policy level. Flood insurance isn’t working in the U.S., so what do we do about it? 

Perhaps lulled by a lack of major storms hitting the U.S., homeowners have increasingly declined to purchase policies, so estimates are that 80% to 85% of homes in Houston were not covered. Meanwhile, the National Flood Insurance Program (NFIP), which provides so much of the coverage, is already heavily in debt because it underprices risk and hasn’t recovered from Superstorm Sandy. By law, the NFIP needs to be renewed this month, but we’ve all seen how dysfunctional Congress is these days, and Congress has even more pressing priorities this month, such as dealing with the budget and raising the national debt ceiling.

The best proposal I’ve seen so far is to require that homeowners and renters insurance, commercial property policies, auto policies and so on all have a flood piece to them, so that citizens carry the responsibility and so that risk is priced in the market, rather than being dumped on the federal government.

See also: Time to Mandate Flood Insurance?

One person attached a compelling comment to this article on how the federal government, not insurers (and, ultimately, the insured public) will pay for the recovery from Hurricane Harvey:

“Homeowners have three options: 1) buy flood insurance through the NFIP, 2) live in a non-flood plain or 3) accept the risk of living in a flood plain. Option 4 of Harvey victims expecting insurers/taxpayers to compensate them for their increased risk is not an option.”

A century ago, in the earliest days of IBM, founding CEO Tom Watson Sr. placed signs in offices that said, “Think.” When the company sparked fears of bankruptcy 25 years ago, wags penciled in two words underneath some of those signs, so they read, “Think – or Thwim.” Flood insurance in the U.S. is in “Think or Thwim” mode. I hope we think.

What the 3 Little Pigs Teach Us

The three most famous houses for risk exposure are the one made of straw, the one made of sticks and the one made of bricks — occupied by our friends, the three little pigs.

These three houses face extreme local straight-line wind exposure courtesy of the Big Bad Wolf. The key lesson taught by this fable is that the better prepared you are for risk exposure, the more likely it is that you’ll come out on the bright side after the risk has passed. Unfortunately, we see every day that some children and many adults did not heed this moral.

While no one provides Wolf-Based Wind Scores (WolfHubTM), it is now possible to find risk scores on just about every other bad thing that can happen to your home or business. We are strong believers in the power of mitigation. After all, many times you can’t just up and move from your location. But to know what to mitigate for, you have to understand the risk around you.

Like the first two little pigs, most people don’t understand the risks around their property, and let’s not overly reward the third little pig. While he certainly did mitigate for Wolf-Based Wind, building his house near a forest potentially exposed him to wildfire. Seeing that he was planning on farming, there had to be a body of water nearby for irrigation, exposing his house to flooding, as well. Lack of knowledge is the leading cause of hazard loss.

See also: 4 Steps to Integrate Risk Management  

That’s why we provide www.freehomerisk.com. So anyone in the U.S. can get a better understanding of the hazards that affect their property. For example, this address in Miami, 701 South Miami Ave., returns a risk identification report like this:

All of the hazards lit up in green are hazards that are applicable to that specific address. Not every address will have every hazard, as hazards are regional in nature. For example, Florida sinkholes only happen in Florida, while tsunamis only happen to places with exposure to the Pacific Ocean. Once you’ve identified the risk types to be aware of you, can investigate further by getting the Risk Exposure Report Card, with grades specific to the address.

For 701 South Miami Ave., Miami, the Risk Exposure Report Card looks like this:

As you can see, at this address you (and the three little pigs) have a lot more to be concerned about than just Wolf-Based Wind.

The Next Step in Underwriting

When a person applies for a mortgage in the U.S., credit reports are pulled from all three bureaus — Equifax, Experian and TransUnion. Why? Because a single bureau does not provide the whole story. When you’re lending hundreds of thousands or millions of dollars it makes sense to find out as much as you can about the people borrowing the money. The lender wants the whole story.

When you’re underwriting the property, doesn’t it make sense to get more than one perspective on its risk exposure? Everyone in the natural hazard risk exposure business collects different data, models that data differently, projects that data in different ways and scores the information uniquely. While most companies start with similar base data, how it gets treated from there varies greatly.

When it comes to hazard data there are also three primary providers, HazardHub, CoreLogic and Verisk. Each company has its team of hazard scientists and its own way of providing an answer to whatever risk underwriting and actuarial could be concerned with. While there are similarities in the answers provided, there are also enough differences — usually in properties with questionable risk exposure — that it makes sense to mitigate your risk by looking at multiple answers. Like the credit bureaus, each company provides a good picture of risk exposure, but, when you combine the data, you get as complete a picture as possible.

See also: Next Generation of Underwriting Is Here  

Looking at risk data is becoming more commonplace for insurers. However, if you are looking at a single source of data, it is much more difficult to use hazard risk data to limit your risk and provide competitive advantage. Advances in technology (including HazardHub’s incredibly robust APIs) make it easier than ever to incorporate multi-sourced hazard data into your manual and automated underwriting processes.

As an insurer, your risk is enormous. Using hazard data — especially multi-sourced hazard data — provides you with a significantly more robust risk picture than a single source.

At HazardHub, we believe in the power of hazard information and the benefits of multi-sourcing. Through the end of July, we’ll append our hazard data onto a file of your choice absolutely free, to let you see for yourself the value of adding HazardHub data to your underwriting efforts.

For more information, please contact us.