The Risks of Hazard

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. 

It’s time to take a second look, as promised, at last month’s Inside the Minds of Insurance Innovators, a Q & A session about innovation that features 16 leaders within the insurance industry. Published by Carrier Management, it provides a rare and real opportunity to consider industry ideas that are both common and unique. This post is dedicated to the latter, highlighting the three responses that stood out to me the most. 

Carrier Management published a great feature on innovation in P & C insurance last month (June 2015). Inside the Minds of Insurance Innovators explores the subject of innovation with a group of 16 leaders from different carriers, reinsurers, brokers, rating agencies, and (for good measure) a modeler, by asking each of them 11 questions. The questions and responses present an overall picture of how a 400+ year-old industry approaches the future at a time when the business and technology is changing faster than ever before, and the speed of change is still accelerating.  

There are some definite trends in the responses, and some complete outliers. I'd like to explore what these 16 industry thought leaders are telling us with a two-part series: In today's post I will focus on the consensus. Later in the week I will look at the not-so-universal responses, which are interesting of course because they're different.

The National Research Council (NRC) published a report in June that explored how FEMA’s National Flood Insurance Program (NFIP) appraises flood insurance in the U.S. It is a very thorough and technical document (as one would expect), that reaches ten conclusions on how NFIP can improve its pricing strategies to become, essentially, more solvent. The conclusions focus on different aspects of how a policy price is determined, including the use of loss/claims data, the risk analysis, flood modeling techniques, damage and exposure estimations, replacement costs, and other factors. One conclusion stood out for me, and I wasn’t alone.