The following is an opinion piece written by Jay Borkakoti, director of home insurance, UK and Ireland, at LexisNexis Risk Solutions. The views expressed within the article are not necessarily reflective of those of Insurance Business.
It’s been a wet and windy start to 2018 with severe storms and flooding across regions of the UK. Thanks to Flood Re, underwriting flood risk has become a different prospect for the property insurance market. A ‘world-first’ flood re-insurance scheme, Flood Re is helping to deliver more affordable insurance for householders who live in a flood risk area. But flood is one of a number of risks property insurers need to understand more completely in order to price policies accurately to weather the storms ahead.
To ascertain just how fully property risks are understood, LexisNexis Risk Solutions undertook a study of the sector. Startlingly, we found that close to three quarters (73%) of the insurers who responded don’t believe they have a thorough and complete understanding of the location and associated risks for the properties they underwrite.
Advanced solutions on the market can provide a more granular view of the risk associated with individual properties, but tackling this challenge did not feature in the top priorities for home insurers in our study. This is despite nearly a quarter (23%) of them stating that their biggest challenge is currently understanding and leveraging the information provided by Flood Re.
The recent examples of extreme weather across the UK and Ireland are a stark reminder of just how quickly weather patterns appear to be changing and how they can be unpredictable. Indeed, 39% of home insurers told us that they believe an increase in flooding and other extreme weather events due to climate change is one of the top trends shaping the industry today.
From Storm Ophelia to the Saharan sand clouds, and not to mention snow which can and does cause travel chaos across the country, the unpredictability of extreme weather, and in particular the frequency and severity of flooding, is a black cloud hanging over property insurers. According to the ABI, the floods in the winter of 2015-2016 resulted in 20,000 claims – including 5,000 from businesses – amounting to a cost of £1.3 billion. Claims from Storm Ophelia alone are predicted to have cost some insurers between £5 million and £10 million to date.
Gaining a full view of the property risk puts insurance providers on guard. It means pricing and underwriting strategies can be refined, putting them in a better position to cope with the inevitable losses which emanate from extreme weather conditions.
Many home insurers rely on a somewhat broad-brush postcode level flood risk analysis, whereas a property-level assessment would be much more accurate. This is the first step to improving home insurance risk assessment and tools like our proprietary Map View product can help insurers achieve this. The data is available; it is simply a case of harnessing that data effectively.
Ultimately, in order to gain both an accumulated and granular view of risk, key risk data needs to be aggregated across five data sources: property, place, people, policy history and past claims. The increasing sophistication of mapping tools, overlaid with new datasets – from contributory claims records to the data from smart building technology – will provide the insights the insurance industry needs. Leveraging this data and mapping technology will help the sector to fully understand their risk exposures and evolve their approach to risk assessment.
