The Risks of Hazard

While reading Gallagher’s CEO first quarter synopsis (Best’s, subscription required) I was interested by his thoughts on the flat rate market in property insurance:

"I've never lived this way before," he said. "It's either one way or the other, where you've got rates coming down substantially and you're shopping everything, or rates are going up and you're scrambling to get the coverage you want."

He continues by describing how comfortable he is in such an environment because his company is built for competition: “Give us a stable rate environment and … we will drive organic growth."

As you may recall, a few weeks ago I mentioned I was planning a trip to Asia to try and find out how insurers, brokers, and reinsurers are handling their risk assessment, particularly for flood risk.

As I sit on the flight from Hong Kong to San Francisco, I have the memories from my 10-day Asia Risk Tour still fresh in my mind. Foremost are the warm welcomes we received everywhere we went, with immaculate hospitality from all our hosts. The food is also still vivid in my mind, from the Under Bridge Spicy Crab in Hong Kong to the famous street food stalls of Singapore, filled with sate and spicy seafood. Coffees and cocktails were enjoyed both under the ground and hundreds of feet in the sky.

I also learned a lot about how the insurance market in Asia manages location-specific risks, especially from natural catastrophes (nat cat), which of course is what I was there to do.

Flood modeling is entirely dependent upon elevation measurements, and a hidden but crucial aspect of any elevation measurement is the datum on which it’s based. The datum defines the height of "zero." Once again I've asked my colleague at Intermap, Mike Wollersheim, to contribute his knowledge to the blog. When it comes to explaining what’s up with datums, he’s definitely up to the task.

If I told you that your city has an elevation of 3,400 feet, most people assume that I am referring to the height above mean sea level. What else are you going to measure your heights from? It seems obvious unless you really think about it. Then you start to ask questions like:

“If I am in the mountains 500 miles from the coast, how did anyone ever figure out what mean sea level is right here?” 

Underwriting property insurance is a very complex operation, with limitless variety on methods of management. I tend to concentrate on the risk associated with natural catastrophes damaging a location, but that is actually just a small part of the overall process. How an underwriter receives requests for quotes, builds quotes, and sends them out (not to mention how that quote affects a book’s accumulation) is an intricate process. What is so interesting to me is how software solutions are solving the inherent problems associated with underwriting as a whole.

The Risks of Hazard blog is devoted to the exploration of natural catastrophe risk, and how to better understand it for insurance. An important aspect of the topic is how the analytics can be delivered. The software that delivers the analytics is as important as the analytics themselves.

Cloud computing is driving a software revolution as astonishing as any other computing revolution of the past 40 years. With the processors and memory moved to the cloud, along with the advance in both of those aspects of computing, it is now possible to build software solutions that would have been impossible 5 years ago. Platform-as-a-Service (PaaS) and Software-as-a-Service (Sass) are the only ways in which innovative software products are being built now. And they are being built to work on the next generation of IT infrastructure being installed by forward-thinking companies everywhere, like Allianz.