The increasing costs – and frequency – of climate disasters are putting insurance companies in the hot seat.
Wildfires, rising sea levels, expedited climate change, uncharacteristically extreme hot and cold spells, and other weather events are affecting businesses and everyday consumers across the country – and causing costly damage. According to NOAA, 2022 marked the eighth consecutive year in which 10 or more separate billion-dollar disaster events impacted the U.S.
Major names in the industry have already bowed out of new home insurance policies due to extreme weather events. Allstate and State Farm are no longer accepting new home insurance requests in California, and Farmers Insurance has stopped offering its home, auto and umbrella policies in Florida altogether. In addition to this, at least seven insurance companies have failed since Hurricane Ida and over the past 18 months, 15 insurance companies have stopped selling new home insurance policies in Florida.
Although these natural disasters and extreme weather events are unpreventable, they are predictable. Insurers can use weather data to better prepare themselves for potential weather-related damages and redefine their policies.
Here are three ways insurers can adapt to the new risk realities caused by the changing climate through access to past, present and future weather intelligence.
Assess and predict the risk of severe weather in clients’ local areas.
Insurers such as Allstate and State Farm pulled back from new home insurance policies in California because the risk from wildfires became too much. The cost to insure new home customers would far outweigh what those customers would pay for their policies.
Although there are different levels of extreme weather risks for different locations, no region is safe from climate change.
To protect their customers as well as themselves, insurers can look at historical, real-time and future weather data to better prepare and adapt for what’s to come. With geographically granular weather data, insurers can develop a more precise understanding of upcoming weather events on a highly local level, allowing much more precise underwriting decisions by location. This can also help them to predict the long-term viability of their regional offerings.
Determine the validity of damage claims.
In 2021, insurers paid $92 billion in catastrophe losses with upwards of 10%, or more than $9.2 billion, lost to post-disaster fraud. Extreme weather events have since increased in both frequency and severity, making it imperative for insurers to be able to quickly determine the legitimacy of weather-related claims.
Insurers can cross-reference reported incidents with weather conditions at the specific time and location of claims to determine their validity. With weather considered as part of the insurance claim vetting process, insurers can do their due diligence and avoid paying out fraudulent disaster claims. This also helps insurers to assist policyholders with valid claims more quickly.
Warn policyholders before disaster strikes.
When insurers are aware of extreme weather before it impacts businesses, homes, people and vehicles, they can better protect those most susceptible to oncoming weather and related risks.
With access to weather data, insurance companies can send policy holders preventive weather alerts. For example, insurers can warn car owners to move their vehicle indoors before a storm or suggest a roof assessment before a particularly windy season. This not only protects consumers and their insured assets, but it can also mitigate risk for insurance companies themselves. Disaster claims can be reduced when people can brace themselves for weather events that may impact their home, travel or vehicle.
As extreme weather and natural disasters become more frequent, and their impacts more costly, insurers are faced with tough decisions to make on current and forthcoming insurance policies. Weather data can help these insurers to make decisions that not only help them to better protect their policyholders amidst the climate crisis, but better protect their business.