One of the regular topics of this blog has been the importance of having the best data for the job when trying to understand risk, as well as understanding what can and can’t be done with the data at hand. Earlier this month (March 2015), there was a fantastic case study showcasing this principle in action in the U.K. flood insurance market.
I encourage you to read the full case study, but here are the highlights:
- New flood data from JBA Risk Management has enabled UK homeowners in high flood risk areas to get insurance cover for their excesses for the first time.
- JBA, which provides natural hazard modeling services for the re/insurance industry, said that this higher-resolution data provides more accurate information for the pricing of premiums to cover the excess charge on flood claims.
- Under the new scheme, called Flood Excess Insurance, property owners who face an excess of up to £15,000 can now insure this charge for an annual premium of less than 4.5 percent of the excess.
By combining a more refined flood model with an innovative delivery mechanism, insurers in the UK are able to offer products they could not previously. What better case study can there be to illustrate how the ability to easily access the right information can improve business?
The other, more subtle, aspect of this story is that it illustrates the notion that uncertainty is expensive in insurance. In this case, homeowners were paying for the uncertainty of the flood risk at their home because it wasn’t certain enough to be economically insured. As the information matured and the uncertainty was reduced, the associated cost was reduced dramatically. Homeowners in high flood risk areas can now save money with sensible insurance practices.
Congratulations to JBA and emapmart on this new product. It sure looks like a winner, and illustrates the innovative solutions being nurtured in the United Kingdom for managing flood risk.
