Disruptive event analysis in insurance

"Extreme heat is not just a weather event. It’s a silent, escalating disaster wreaking havoc on health, economy and infrastructure". Ricardo Lara, California’s Insurance Commissioner. 👉 Heat waves have become more intense, longer lasting and three times as frequent as they were 60 years ago. 👉 Injuries to construction workers were 20% higher when the temperature climbed above 95 degrees Fahrenheit, compared with milder days (Workers Compensation Research Institute). 👉 The damage caused by heat can lead to significant underwriting losses for insurers. Source: The Wall Street Journal A couple of own thoughts and ideas: ◾ Extreme heat, a byproduct of climate change is an escalating phenomenon, causing severe economic damages, which are increasingly excluded from insurance coverage. ◾ The unpredictability and frequency of extreme heat events can disrupt the core principles of insurability, resulting in insurance coverage exclusions rooted in fundamental changes in actuarial and risk assessment calculations. ◾ The exponential rise in temperatures and their associated phenomena have made future risk prediction models less reliable since the use of historical data and risk models is inconsistent to extreme weather events. ◾ Multi-sector heat-induced damages extend to human health leading to higher healthcare costs and lost productivity. ◾ Reinsurers are recalibrating their portfolios to limit exposure to climate-related risks leaving businesses and individuals vulnerable against climate-induced damages. ◾ Existing infrastructure is neither adaptive nor heat-resistant, exacerbating vulnerability, while escalating uninsured losses. ◾ Artificial intelligence and machine learning can improve predictive models for climate risk combining large datasets incl. historical weather patterns, satellite imagery, real-time climate data, providing insurers with advanced and enhanced predictive capability. ◾ Blockchain technology and smart contracts can be particularly beneficial in the context of parametric insurance streamlining operations, while increasing trust and reliability. ◾ IoT devices can monitor and proactively manage building temperatures in real-time optimizing energy use, while reducing strain on power grid. ◾ Geographic Information Systems (GIS) and remote sensing technologies allow for an enhanced spatial analysis of heat impacts. Insurers are able to capture a granular understanding of risk distribution towards more tailored and equitable coverage. ◾ Quantum computing enhances climate and financial risk modelling using multifactorial simulations to accurately predict climate patterns and extreme weather events, along with simulating molecular interactions to engineer material with superior thermal properties. #climatechange #extremeheat #extremeheatinsurance #climatechangeinsurance #climaterisk #climateriskmodelling #extremeheatinsurance #climatechangesimulations #climateriskscenarios #emergingtechnologies #climaterisktechnologies

Let’s understand a very important insurance concept that is CAT Modeling - Catastrophe (Cat) Modeling in insurance is a method used to assess and quantify the potential financial risks associated with catastrophic events such as natural disasters (e.g. earthquakes, hurricanes, floods) or large-scale man-made events (e.g. terrorism). The goal is to estimate the probability and severity of such events and to predict the potential impact on insurance portfolios, helping insurers better manage risk, set premiums, and plan for reinsurance. Key Components of Cat Modeling: Hazard Models: These models simulate the occurrence and intensity of catastrophic events. For example: Earthquake Hazard Models: Predict the likelihood and intensity of earthquakes in a region. Exposure Data: This refers to the data about the assets or properties that could be affected by a catastrophe, including: Location of buildings. Vulnerability Models: These models assess how likely different assets are to be damaged by a specific type of catastrophe. For instance: Flood Vulnerability: How susceptible various structures are to flooding depending on factors like elevation, construction type etc. Financial Impact Models: These estimate the potential financial losses caused by catastrophic events, such as damage to property, business interruption costs, and claims payouts. Loss Estimation: After applying hazard, exposure, and vulnerability data, cat models calculate the probable loss, which helps in determining insurance premiums and reinsurance needs. Earthquake Cat Modeling: Scenario: An insurance company insures properties in California, which is highly prone to earthquakes. Cat Model Use: The company applies earthquake cat models that use geological data to predict the likelihood of earthquakes in various areas. The model considers factors like fault lines, soil types, and historical earthquake patterns. Outcome: The insurer can assess the probable losses from potential earthquake events, allowing them to set premiums that reflect the actual risk and adequately prepare for possible claims. Hope this helps! #catmodeling #insuranceconsultant #reinsuranceconsultant #p&cbusinessanalyst #insuranceanalyst #insurancesme #insuranceconsulting

New research from the Society of Actuaries Research Institute and Casualty Actuarial Society explores how insurers approach deterministic scenario analysis—a vital tool in today's complex risk landscape. This study examines how companies respond to a global IT disruption scenario, revealing key insights on operational risk, resilience strategies, and the value of tabletop exercises in enterprise risk management. Read the full report to see how the industry is preparing for tomorrow’s disruptions. https://lnkd.in/g_aCBrhv #ActuaryResearch #ERM #InsuranceIndustry #OperationalRisk #RiskManagement #ScenarioAnalysis #SOAResearch #CASActuaries #LeadershipInRisk

On the 20th anniversary of Hurricane Katrina, we reflect not only on the catastrophic devastation and horrific loss of life, but also on the storm’s lasting impact and the lessons learned as an industry. Hurricane Katrina was a defining event for the insurance industry, and it reshaped how insurers prepare for, and respond to, disasters. As the costliest insured loss event in history, Katrina resulted in more than 1.7 million claims. Since then, insurers have invested heavily in innovation and technology, such as mobile claims centers, drones, digital tools, and more, to help speed up assessments and claims payouts when disaster strikes. Hurricane Katrina showed us that flood risk isn’t just a coastal issue—it’s a national one. Thousands of homeowners perceived to be ‘low risk’ for flooding did not have flood insurance, which resulted in massive uninsured losses and hindered the ability of families and communities to recover. New Orleans is still grappling with these lasting impacts as its population remains 20 percent lower than pre-Katrina levels. Flood insurance gaps continue to be a major exposure for homeowners across the U.S., and more work is needed to help close the coverage gap. Katrina also taught us that mitigation and resilience efforts are not optional—they are essential in order to save lives, limit costly damage, and protect local economies. This is more important today than ever before as climate change is escalating the risk landscape through more intense rainfall events, higher sea levels, and stronger storms. A major hurricane striking a highly populated metropolitan area could easily cause more than $100 billion in insured losses today. Insurers are updating catastrophe models to more accurately reflect our nation’s changing risk environment and help consumers better understand and manage their exposure. Two decades later, the insurance industry remains committed to building a more resilient future. Insurers are investing heavily in building safety research through the Insurance Institute for Business & Home Safety to help develop real-world, actionable solutions for consumers and communities. By working together with policyholders, lawmakers, governments, and all stakeholders, we can help prevent another tragedy of such magnitude and usher in a new era of preparedness and resiliency.