The Risks of Hazard

I recently wrote a blog about how the future of underwriting software is now, exploring this AM Best video. One of the things that stood out was that underwriters are going to be more responsible for building and managing their sales pipeline. This is particularly prescient for those underwriting non-NFIP flood insurance because of the impending rush into that market – building strong portfolios will be extremely important because those portfolios will represent an insurer’s initial position in the market. As early adopters turn into the full industry’s arrival, competition will be fierce* for good risks. Differentiation will be necessary for success. (* it will probably be fierce, but not necessarily…but that’s another blog).

The main source of differentiation for an insurer is going to be the flood risk analytics they use. Ideally, those analytics will be based on their own experience, data, and expertise because when everyone uses the same models it is more difficult to differentiate. Quality of the insurance coverage will also quickly distinguish the players.

Swiss Re published a paper describing a potential natural catastrophe that would be the costliest nat cat event in U.S. (and, ipso facto, global) history. Other publications are picking it up for obvious reasons, including Insurance Journal and Carrier Management. The first surprise of many who read the paper is the event they are describing: Midwest earthquake.

Really?

AM Best has had some really compelling videos on their site this week, including this clip from Tuesday that showed us the future of underwriting through the crystal ball of Gail McGiffin of Ernst & Young. She and Meg Green discuss what property insurance underwriters of the future will be expected to do and how they will do it.

On AM Best’s online TV channel, there is an interesting story featuring Philadelphia Insurance Company’s joint effort with the Arbor Day Foundation to plant 80,000 trees in an area of Texas that has been devastated by wildfire. (Click here to watch the full video.) I sent the link to my friend Chris White, of Anchor Point in Boulder (creators of the No-HARM model for wildfire risk) to get his perspective on the initiative through the lens of wildfire risk.

In the United States, ZIP codes are universally understood proxies for location. People often instantly recognize an address’s state or region from the first digit or two, and sometimes a full ZIP becomes well known (e.g., 90210 for Beverly Hills).

But these days, ZIP codes do much more than route mail. They are used for things like credit card identity checks; demographic data collection by the U.S. Census; real estate pricing and marketing; and (incongruously) property insurance risk rating, accumulation, and reporting. That last one may come as bit of a surprise, so let's take a look at how insurance companies use ZIP codes — and whether or not their methods make sense.