The Risks of Hazard

Over the past weeks, I’ve talked a bit about innovation in insurance (my trip to San Francisco and a look at VC’s perspective), and concluded that while there is no sign of true disruption (i.e. in the Uber sense), there is plenty of innovation to be excited about.

Just to be clear on what “disruptive innovation” means, here is what it might be like. Actual, real disruption in insurance would mean that in the space of a few years, the $3+ trillion insurance industry would need to find something else to do with their cash and investments because almost nobody would need their services and products anymore.

Wildfire has been big news in 2015. The USA and Canada are both having epic years, as long-term droughts combine with hotter and drier-than-normal temperatures in much of the West burning more acres and buildings than ever. Yet, when I talk to carriers about risk analytics, wildfire seems like an ignored peril. Why?

Historically, wildfire has been underwritten (or excluded) based on proximity to trees. Historically, that was adequate, too. But over the past 20 years, as towns and suburbs have expanded into wildland, the exposure to losses has increased exponentially. This week, AM Best (mind the subscription-wall) is reporting on Guy Carpenter’s estimated losses for the Western US in 2015 and the figures are eye-catching: $1.75 billion.

Last week I wrote about the event in San Francisco I went to where we explored innovation in insurance with Big Data. The point I made was that Big Data and new software are innovating insurance incrementally, but not disruptively. Since then, I’ve been wondering if I was selling the innovation short. Is there actually something disruptive happening? There are plenty of articles out there suggesting there is, so what am I missing?

Last week I attended an event in San Francisco that was focused on Innovation through Big Data in Insurance. San Francisco in autumn is a pleasure (especially the St. Francis Yacht Club – what a great venue!), and the opportunity to connect with colleagues new and old is always really good. The show itself was interesting, too, but not for the reasons I expected.

Insurance has been working with big data since before “Big Data” was a buzzword – in fact, for centuries before the term was coined. Unlike other businesses that have been disrupted by software platforms and the enormous amount of data they can access and leverage, every insurance company in existence already leverages big data (with varying levels of efficiency). Showing up at this show, I was really curious to see what disruptive insurance might look like.

The Curiosity Rover has discovered liquid water on the surface of Mars. While this is an epoch-defining moment for planetary scientists and astro-biologists, the news also heralds a new peril for the P & C insurance industry. Martian Flood is a nascent market, and preparatory work is already underway to enable early innovators to enter it.

The announcement came two weeks ago, and stated that liquid water was observed to be seeping from the sides of canyons and craters. The source of the water is not yet understood, but the leading theories suggest it is coming from aquifers, melting surface ice, or condensation. Regardless of the source, the marks of the water can be seen on the rusty landscape.