By Sean Rider, Chief Revenue Officer
In a new report by the French technology consultancy Capgemini, insurance customers placed climate change among their top concerns—second only to the Covid pandemic. As a result, insured losses were 3.6 times higher in 2021 than in 1990.
Amid recent flooding of Yellowstone Park, wildfires in New Mexico and a heat wave that caused power outages in much of the Midwest and Northeast, the threat of climate-related disasters has become clear across the U.S. In Capgemini’s study, U.S. insurers placed climate risk as their top measured risk, at 44%, even above the global industry average.
Slowly but surely, U.S. insurers are awakening to climate risk, but the level of risk they face outweighs any actions to mitigate and adapt to it.
That is not to say efforts are nonexistent. 67% of U.S.-based insurers (23 of 35 global insurers) have appointed Chief Sustainability Officers in an attempt to address climate risk in the C-suite and drive solutions from the top down.
But in areas like sustainability and robust governance, the U.S. still lags global industry standards. Many U.S. insurers have yet to incorporate new data sources, such as satellites, remote sensors, weather stations, geo-data, water level monitoring and advanced technologies (AI/ML) to produce more financially sound investment and underwriting practices.
Only 32 percent of U.S. insurers embed climate risk data in their products and services. Even fewer — only 23 percent — offer climate risk advice and mitigation services. And, when it comes to embedding ESG data in investment and underwriting at scale, the U.S. dips even below the global industry average, at only 21 percent.
Insurers have been slow to adopt these practices even customers have asked to pay for them. According to the Capgemini report, 67 percent of customers want insurers to provide them climate risk advisory and mitigation services, and 53 percent say they would be willing to pay for such services.
To protect their profits and serve customer needs, insurers must improve their approach to resilience, embedding advanced technologies and tools into the fabric of their businesses. To do this effectively, insurers must partner with climate resilience firms like One Concern, which specialize in helping customers understand, prepare for and mitigate the risk associated with climate-related hazards.
In a crowded field of climate resilience firms, One Concern distinguishes itself by accurately quantifying not only the physical climate risk to a customer’s assets but also the dependency risk — that is, the climate risk to the roads, electrical grids and other infrastructure without which those assets could not function.
One Concern maps and quantifies the full range of climate-related risks with its U.S. digital twin, a proprietary ML-enabled technology that replicates U.S. infrastructure. For insurers, our digital twin, One Concern DominoTM, can reveal how select hazards impact commercial buildings and the infrastructure on which the corresponding businesses depend. Domino produces statistics on the downtime resulting from a hazard, providing meaningful building blocks for quantifying resilience.
One Concern Insurance Use Case
Today, underwriters use third-party tools to assess building damage. But these tools don’t provide data an underwriter can use to evaluate the business interruption likely to result from an external factor, such as a power outage, residential workforce impact, or the closure of highways, bridges, ports, and airports.
Manual analysis based on past claims history provides minimal data value. To fill the information gap, underwriters work with One Concern to get the downtime statistics they need to perform comprehensive risk analysis and make better insurance decisions. One Concern resilience data augments existing building damage analysis with comprehensive business loss analysis that includes the impact of external events. It also enables underwriters to perform probabilistic analysis for hazard events within various return periods.
When underwriters engage with One Concern Domino, they can visualize a property’s at-risk infrastructure factors and conduct a first-to-fail analysis to determine the real risk and resilience of the business. Ultimately, insurers obtain the data they need to make informed assessments in recommending changes to Business Interruption (BI) coverage and evaluating the potential opportunity to offer Non-physical Damage Business Interruption (NDBI) policy coverage.
In short, transforming risk into resilience will require insurers to adopt climate resilience platforms like Domino. One Concern provides insurers with a better picture, and enables them to retool their business and operating models for success.
EVENT REGISTRATION: On July 14th at 11 AM ET, Sean Rider will be speaking at a webinar with Cap Gemini about his perspective on climate preparedness for insurers. Register here: https://bit.ly/3P7wqWh