The Risks of Hazard

Last week, Property and Casualty 360 published a post by Sean Allen entitled 4 areas for the Insurance Industry to Modernize. The article is based on the consensus after the Xchanging London Market Conference last November, and it starts with:

Fair or not, many look at insurance as an outdated industry, lagging behind others of similar stature and scale when it comes to innovation.

In August 2015, Lloyd’s and JBA Consulting published a white paper called California Flood – Central Valley Risk Analysis. At the time of publication, it was received with raised eyebrows as the state was in an historic drought. Characteristically, Lloyd’s took the long view and they released the study, knowing El Niño was on the way.

The report is very much focused on the accumulated flood risk in the Central Valley, including property, crop, and business interruption, and the figures it cites are as huge as expected – a potential loss exceeding $24B.

Last week, I had the pleasure of meeting representatives from three Lloyd’s syndicates for the first time. It was an exciting time for me and my product (InsitePro™), because Lloyd’s is always a milestone for any new product serving insurance. The real beauty of the meetings, though, was that they were not in the City of London, but rather, in a small American prairie city.

The Lloyd’s market is an icon of insurance, with its vast history, its innovative approach to risk management, and its global reach. To many people, Lloyd’s of London IS insurance. I always thought, though, that my first meetings with a Lloyd’s syndicate would be in London at their famous headquarters. Nope.

Last September I wrote about the difference between underwriting with a pen vs. a paint-roller, exploring the problem with using analytics and data that are not able to accurately depict flood risk at a specific location. The post took a critical look at using FIRMs for underwriting flood insurance because they are not intended to depict location-specific flood risk (they’re pricing tools for the NFIP). That blog was very well received, so I thought I would follow it up with a graphical look at the same topic. The notion was reinforced by the news from Washington on the Flood Bill.

Last week I wrote about the Protection Gap and how insurers should be serving it. The post has been a huge success, mostly because it features Hemant Shah, CEO of RMS (thank you Mr. Shah!). The article pivoted on the question “What risk is the insurance industry not ready to handle?” and Mr. Shah’s response:

“I worry more about the risks the insurance industry is not covering right now.”