The Risks of Hazard

As the US gets ready for the Thanksgiving holiday, it’s sobering to think of the wildfires that are burning in the country’s southeast. After months of weather that has been way warmer and dryer than usual, there are several fires burning throughout Kentucky, the Carolinas, Georgia and (worst of all) Tennessee.

AM Best has published their annual look at World Catastrophes for 2015 (mind the subscription wall). The main three overall takeaways from 2015 are:

1. The largest cat loss of the year was man-made. The explosion in Tanjian, China, caused more insured losses than any natural catastrophe last year, and was the third costliest man-made disaster for insurers in history.
2. Overall, it was another quiet year for cat losses. See Graphic 1 for an historical look.
3. The Protection Gap was huge enormous gigantic, especially in Asia. See Graphic 2 for the gap between total and insured losses. Light green = Gap.

In the past, this blog has asked rhetorically “Why do insurers ignore wildfire?” It’s a peril that causes real losses (about $6B in the past 20 years in the USA alone), yet has data and analytics that can significantly improve residential and commercial underwriting for it. The readership metrics for Risks of Hazard reinforces the question: blogs about wildfire get opened less than any other subject we write about. Today, let’s answer that rhetorical question: Here is why insurers pay less attention to wildfire than they should.

Every summer, wildfire is high profile. The names of some recent fires are evocative: Rim, Sleepy Hollow, Waldo Canyon. This year the headlines are coming from the East: Pennsylvania has the Lehigh Valley Fire, and the late April NFS situation report lists fires in six eastern states. In Canada, the news is harrowing as Fort McMurray (pop. 80,000) is being evacuated as the city burns. Notoriety and media coverage is not the problem.

With wildfire season officially here, the Risks of Hazard is republishing the below post from last year. The question we asked in October remains valid – why do insures not do more with wildfire analytics when it’s one of the most robustly modeled cat perils?

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 took a look at the Top 5 Risks of Hazard articles from 2015. Today, here is a look at the Top 5 Accomplishments of InsitePro^™, the risk assessment software we are building here when not writing blog posts.

5. API connectivity. Insurance software is slowly but surely moving towards interconnectivity between disparate systems and software packages. Not everything is in the cloud (yet), but almost all insurance systems are able to integrate analytics and datasets. InsitePro fits this type of environment with its full suite of APIs and web services, plus it is based in the cloud and waiting for the industry to realize the benefits there.