The Risks of Hazard

There is a great article over at Insurance Thought Leadership by Deb Smallwood describing the traditional interaction between agents and insurers. Or, to be precise, the lack of interaction between them (It’s not a good sign when the metaphor for the link is a trench!). The issue she explores is the difficulty in exchanging the necessary information between agents (or brokers) and insurers to ensure smooth business processes. The same problem could be expanded to include any interface in the entire insurance industry, including reinsurance brokers working with their customers and the reinsurers, and even the reinsurers working with the markets.

Imagine for a moment that your home has been damaged, and you and your family need to move out for a few months while it’s repaired. The more you think of it, the more the extra expenses add up – rent, extra groceries because you have a smaller fridge, extra commuting costs, and on and on. Luckily there is insurance for this: loss of use.

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?