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When it comes to dealing with catastrophe management, insurance carriers have been accused of shutting the proverbial barn door after the horses have escaped. The industry’s significant actions and advancements are indeed usually reactions to severe adverse results. I attended two insurance industry meetings in November, the Casualty Actuarial Society (CAS) Annual Meeting and the Property Insurance Report (PIR) National Conference. Both events dedicated prime podium time to experts in the field of hail meteorology. Have the horses escaped? It would appear so. According to the Insurance Journal (December 14, 2016), Texas hail losses set a record in 2016. The Texas Department of Insurance (TDI) released a report indicating that its state’s homeowner losses from hail were the highest annual losses ever recorded, exceeding $5 billion. Texas wasn’t the only state impacted. In June 2017, the Property Casualty 360º website summarized a study of insurance claims from the Insurance Services Office (ISO) ClaimSearch database showing a 48% increase in the number of hail claims nationwide in 2016. It is safe to say that hail has our full attention.
Following major hurricane losses, the insurance industry responded on several levels. It built sophisticated models to better predict and mitigate resulting losses. It actively supported regulations and building codes to ensure more durable building materials and processes. It created windstorm pools to share the cost of essentially uninsurable risks in the eyes of the private market, to name just a few changes.
Will the insurance industry’s actions following hail damage claims be similar to its response to hurricane risk management? It is very likely. However, in order to create comparable risk assessment models, the science of predicting where hail storms will form and at what magnitude, storm coverage area and hail size, will need to improve. This improved precision is needed for the same reason the science hasn’t progressed as swiftly as with other weather events: Hail is a highly localized peril. This localization means models need to be fairly accurate to be useful in risk management, and it makes it difficult to collect observations.
The good news is that both speakers John Allen, Assistant Professor, Department of Earth and Atmospheric Sciences at Central Michigan University, who spoke at the CAS Annual Meeting, and Ian Giammanco, Lead Research Meteorologist, Insurance Institute for Business & Home Safety (IBHS), who spoke at the PIR National Conference, shared a promising outlook for the advancement of the collection and analysis of data from hail events. They indicated that hail science is catching up to other weather events thanks to new tools like advances in radar technology used to understand and capture the characteristics of hail and hailstorms.
More data collection means more granular-level computer simulations can be created for use in specific geographic risk forecasting and mitigation. More detailed information on when and where hail may occur can also improve the logistics of moving claims personnel to potential impact zones. Mr. Giammanco noted that advances in weather-related models are, “generally driven by the public sector, government labs and academia, but the paradigm is shifting as private-sector groups like IBM and Panasonic leverage new computational tools to drive model advancements forward.”
Given the recent increases in hail damage claim activity and the potential for increased severity of storms due to climate change, it is reassuring to see the insurance industry focusing on this topic. Hail yes!! More information on the IBHS hail studies is available at www.ibhs.org
Linda Brobeck is a Director and Consulting Actuary with Pinnacle Actuarial Resources, Inc. in the San Francisco, California office. She has worked in the property/casualty insurance industry since 1986 and has been providing actuarial consulting services since 2011. Her consulting career has focused on ratemaking and predictive modeling for several lines of insurance including personal and commercial automobile, homeowners, and professional liability. Linda is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. She serves as the Vice Chairperson of the Program Planning Committee for the CAS and is a member of the CAS Examination Committee.
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