Stormy times ahead for Insurers

December to February is typically the time of year when the most windstorms occur across the UK. At the beginning of December, Storm Caroline hit the UK causing high winds which mainly affected Western Scotland and Northern Ireland and leading to power cuts to 49,000 homes.  Storm Dylan brought with it strong winds and snow, leading to travel chaos.

Storm Eleanor battered parts of  the UK and Northern Europe at the beginning of January. The Met Office recorded gusts of up to 100 mph in Great Dunn Fell in Cumbria and huge waves of up to 26 feet were recorded in Devon and in Cornwall, a harbour wall was completely destroyed.

The ABI, AIR Worldwide and the Met Office have done some research into the impact of climate change on windstorm events.  The report found that even a small rise in temperatures due to climate change is projected to lead to more insurance losses as a result of high winds.

The analysis indicated that the increased losses are not spread evenly across the country but are likely to be concentrated in Northern Ireland, northern England and the Midlands.   The full report can be found here.

An increase in the frequency and severity of storm events will inevitably place a greater burden on the insurance industry.  Matt Cullen, the ABI’s Head of Strategy commented: “The likelihood of claims resulting from severe storms increasing in the future is something the insurance industry, and society, need to start preparing for now. Planners and builders should be aware of the need for more wind-resistant construction in specific areas of the country if claims are to be kept to a minimum and residents spared the distress and expense of higher levels of wind damage.”

Having a greater understanding of storm risk for a particular location allows insurers to mitigate this risk in their pricing and improve profitability.  Business Insight has built storm models for both residential and commercial properties in the UK which provide a new level of insight into the distribution of storm risk.

The probabilistic models predict which addresses are most likely to experience claims through damaging winds from future storm events.  Based on state-of-the-art mathematical modelling and extensive computing power and combined with over 80 million historic windspeeds recorded in urban areas from across the UK. The analysis of property vulnerability is also taken account of across 26 million homes and 1.7 million postcode locations.

Considering the variation in peak wind gusting across the UK together with factors such as topography, urban density, the local built environment and the likely state of repair of buildings the model can be used to predict annualised loss estimates right down to individual property level.

Benefits for insurers include an unrivalled level of granularity for a deeper understanding of exposure to storm claims in the UK across a book of business and the ability to easily discover areas where rates need modifying to improve storm loss ratios.  It can be supplied in a number of formats and is easily integrated with existing systems.

Contact us for more information on 01926 421408.

Product Focus – Theft model rebuild

resonateABI figures show that theft from households accounts for 13% of all claims received. Although the volume of theft claims has been falling in the last decade, it is still significant and amounted to over £440 million in the UK over the last year on property related claims. Having an accurate perils rating model that can differentiate risk at a highly granular level can make a considerable difference to improving loss ratios and boosting profitability.

The Business Insight residential theft model ‘Theft Insight’ predicts the relative risk and variation of domestic burglary across the UK and is currently used across the industry by sixteen major property insurers.

Business Insight also has a commercial property theft risk model specifically for commercial property insurers.  Both models are based on extensive research into crime patterns using the latest available data and take account of the changing economic landscape of the UK. This covers a cross-section of inner cities, large towns and suburban neighbourhoods through to small towns and more rural areas.  Built from high resolution spatial and demographic data and calibrated using sophisticated mathematical techniques, the models produce estimates of risk on a street by street level across the UK.

At Business Insight, we know our products need to add value to insurance company pricing and they also need to beat insurers own in-house actuarial models for an insurance company to licence our products as external data feeds.  Consequently, we invest significantly in R&D to ensure that our products help insurers maintain a competitive advantage.

Some vendors build a peril risk model which is a static product with little or no further refinement. Once built, the predictive accuracy of a perils risk model degrades over time so the continuity of development and focus on improvement and refinement is very important.

We are currently working on rebuilding our theft models using AI techniques, refreshed data and experimenting with a new level of geography that ensures the anonymity of people residing in those locations but that is also more powerful than current postcode versions. This will provide a deeper insight into crime and theft patterns across the UK and a higher level of predictive capability.

Contact the sales team for more information on 01926 421408.

The Great Storm of 1987 – 30 years on

After the devastating effects of Storms Harvey, Irma and Maria on the US and Caribbean Islands, we revisit the great storm of October 1987.  Experts are already saying that Storms Harvey, Irma and Maria could end up being three of the costliest storms in modern times. AIR Worldwide has put potential insured losses for the three storms in total at an astonishing $155bn. We are lucky in the UK that we don’t get storms of this type hitting our shores. Indeed, major storms causing losses in excess of £1bn are rare events in the UK. On the 16th October 2017, it will be thirty years on from the Great Storm of 1987.

Referred to in the industry as ‘87-J’, the storm took everyone by surprise and at the time, was classed as the UK’s worst storm since 1703. It still remains one of the most severe and costliest windstorms the UK has ever experienced. One in six households made a claim at the time and losses to the industry for commercial and residential cover exceeded £1.3bn.

Striking in the middle of the night, the 1 in 200-year storm left behind a trail of damage and devastation in the South East of England and Northern France with 18 people losing their lives and extensive damage to property and infrastructure. Many houses were without power for several days and fallen trees blocked roads and caused travel chaos. An estimated 15 million trees were uprooted and Seven Oaks famously became One Oak.

The worst affected areas were parts of Greater London, the Home Counties and the East of England. The South East of England experienced unusually strong wind gusts in excess of 81 mph lasting for 3 to 4 hours and gusts of up to 122 mph were recorded at Gorleston, Norfolk.

The exact path and severity of the storm were very difficult to predict using the forecasting methods and data available at the time.  The Met Office’s Michael Fish faced a backlash for dismissing a viewer who had asked about whether the UK could expect a hurricane but at the time it was hard to forecast the precise path the storm would take. The path of the storm and the direction of the wind were very unusual; running from south to north, with the storm striking the more densely populated areas of the South of England.  The South of England has higher concentrations of sums insured and this resulted in a large loss for the Insurance Industry. Subsequently, changes were made to the way forecasts are produced and the National Severe Weather Warning Service was created.

A better insight into windstorm risk

Data modelling and analytical tools to help underwrite and price property risks accurately for natural perils have come a long way since 1987 when data on individual properties was scarce and geographic risk assessed by postal district. Insurers are now much better equipped to gain an in-depth understanding of risk exposure with access to risk models that are based on up-to-date, accurate information and that take account of changing risk patterns.

Business Insight’s ‘Storm Insight’ risk rating model. is based on extensive research, huge volumes of explanatory input data and cutting-edge analytical techniques. Storm Insight utilises the largest source of storm claims information available in the UK, detailed property vulnerability data for every street and over 100 million historic windspeed data points recorded in urban areas across the UK.  We also have access to an archive of actual storm event footprints over the last 150 years to gain insight into rare events such as the 87-J Storm.

What would the industry loss be if 87-J were to happen again?

In 1987 the losses from the great storm on 17th October resulted in over £1 billion in insured losses to domestic property as well as significant damage to commercial property. Things have moved on since then, in terms of housing development, levels of affluence and insured values at risk. Over the last 30 years, there have been significant increases in housing development across the South of England in areas that were in the path of the storm in 1987.

Official figures from ONS show the number of residential properties in England increased by 28% between 1987 and 2017. In London (Outer and Inner) the increase has been 32%. Coupled with that inflation has more than doubled over the last thirty years and, perhaps more significantly, the wealth across the South East of England and London has increased enormously. Many more properties across the housing stock have been extended in 2017 compared with 1987 and the total insured values at risk is of an order of magnitude higher. The level of wealth is also far higher with one in ten households now reported as having assets worth more a £1 million.

If the UK were to encounter the same storm again in October 2017, the loss to the UK Insurance Industry would not be in the same league as recently reported losses in the USA and Caribbean though it would still break all previous UK records. In our view, it is likely that losses to the UK insurance industry for such an event would exceed £6bn.

Product Focus – Commercial and Residential Fire Insight Update

Fire is one of the few perils that consistently meets an insurer’s estimated maximum loss expectation.  Getting a greater understanding of the geographic variation in the risk of fire is becoming more important and something that many insurers are spending more time building into rating area files for property underwriting purposes.

There are many factors that influence the risk of fire ranging from property specific factors relating to the vulnerability of different types of building through to demographic and behavioural factors describing neighbourhoods and streets that are more prone to certain fire related incidents.

Business Insight has been researching and building geographic fire risk models for the last 8 years. Having a risk model that has been well researched and that can accurately differentiate risk across the UK can add considerable value to the accuracy of your buildings and contents rating area files.

Our residential fire model is based on extensive research into residential fires and assesses the relative risk and variation of deliberate and accidental fire claims across the UK.  Our commercial fire model assesses the risk of a fire claim by commercial business category, source & frequency. Both models utilise highly complex computer algorithms and vast quantities of data relating to residential and commercial properties, the local environment and the demographic make-up by area to estimate risk more precisely.

As part of our commitment to ensuring our models are continuously enhanced and kept up-to-date, we have recently recalibrated the residential and commercial fire models with enhanced data to provide a more granular level of detail and a more accurate assessment of risk.

Both models have been validated by a number of insurers using fire claims information and have shown a high degree of discrimination between high and low-risk areas.

Key benefits include:

  • Gaining a deeper understanding of your exposure to fire claims in the UK across your existing book of business.
  • Gaining insight into postcode areas where you have no experience data.
  • Discovering where you need to modify your rates to improve your fire loss ratio.

Contact our sales team for a demonstration on 01926 421408.

Long range Winter forecast 2016/17

The past few days have been distinctly chilly and have fuelled speculation of a harsh winter to come.  After last year’s mild and very wet winter, we look at early indications as to whether this is an accurate reflection.

There is an art to reading and understanding seasonal forecasts issued by the various weather services of the world.   Very few of the available forecasts use the same metrics making a consensus very difficult.

The Met Office released their 3-month outlook the beginning of November and in it they highlighted the risk of a cold start to the winter, but they were quick to point out that “This does not necessarily imply that the UK will experience cold and snow – in fact, the most likely outcome is for conditions to be relatively normal on average over the next 3 months.”

We asked our data partners at Weathernet if there were any indicators to suggest we are heading for the severe winter the press is speculating about.  The Weathernet team advise that beyond two weeks ahead, all forecasts should be treated as very speculative.

However, they report that certainly cold days – and night time frosts – are set to persist for at least another week. According to Steve Roberts of Weathernet this is due to a combination of factors and these include ENSO (El Nino Southern Oscillation) in a neutral state, QBO (Quasi-biennial Oscillation) in its easterly phase, SST (Sea Surface Temperatures – around Newfoundland) that are very warm, and the record lack of Arctic Ice.  So, the odds are already stacked significantly in favour of a December that is considerably colder (and drier) than normal.

Beyond then, from late January into February, things are less clear, or certain – but there are some grounds to believe conditions might revert to stormy and wet, leaving winter 2016-17 as a whole only a little colder and drier.

Beyond then, from late January into February, things are less clear, or certain – but there are some grounds to believe conditions might revert to stormy and wet, leaving winter 2016-17 as a whole only a little colder and drier.

If we do see temperatures as low as those of winter 2010/11, the insurance industry should be ready to brace themselves for a large number of Freeze claims.

Insurance and fire risk – 350 years on from the Great Fire of London

fire riskSeptember 2016 marks the 350th anniversary of the Great Fire of London.  The fire, which started in the early hours of Sunday 2nd September 1666 on Pudding Lane and lasted several days, devastated London.

Over 13,000 buildings were destroyed in the fire, including many homes, commercial buildings and other well-known landmarks such as St. Paul’s Cathedral, the Royal Exchange and Newgate Prison.  Miraculously, there was little loss of human life.

As the long and arduous task of rebuilding London commenced, to try and ensure that London would not face such devastation from a fire again, a number of changes were made to laws and Parliament set up the Fire Court.

The Court was established to settle differences arising between landlords and tenants in relation to burnt buildings and decide who should pay.  A year later, physician Nicholas Barbon set up the first insurance company, the Fire Office, whose sole purpose was to insure houses against loss due to fire.

The ABI have calculated that if that particular area of London were to be hit by a similar fire today, repairing the damage caused would cost somewhere in the region of £37 billion.

The insurance industry has come a long way since 1667 but is still dependent on a proper understanding of risks. With ABI figures showing that the average claim for domestic fire damage is around £11,000 and the average claim for commercial fire around £25,000, fire is an important peril for insurance companies to consider.

To help insurance companies better understand their exposure to fire claims and likely accumulations of risk in urban locations, Business Insight has a range of data enrichment models and a mapping and accumulation management application called ‘Location Matters’. The Fire Insight data enrichment models help to assess the relative risk and variation of deliberate and accidental fire claims across the UK; both for commercial property insurance and for home insurance. The models utilise highly complex computer algorithms and vast quantities of data relating to residential and commercial property, the local environment and the demographic make-up by area to estimate risk more precisely.

Accumulation management with ‘Location Matters’ enables an insurer to monitor policy accumulations by location to gain greater insight and understanding of risk exposure, allowing insurers to answer the question ‘should another Great Fire ever happen in London again, what is my probable maximum loss’?

To find out more contact our sales team on 01926 421408.

Product Focus – Escape of Water

perils and escape of waterEscape of Water (Non Freeze) claims currently account for around 25% of domestic claim costs, so having an accurate measure of escape of water risk is vital for insurers.

The cost of insurance claims resulting from escape of water claims such as plumbing equipment failure, and burst pipes and leaks can be significant.   Business Insight’s Escape of Water (Non-Freeze) model has been designed to predict the relative risk of escape of water claims across the UK.

Working closely with a number of insurers and data partners, Business Insight has utilised PhD level mathematical modelling to analyse highly detailed datasets against historic claims patterns to estimate risk by postcode. Over 100 million data records, 26 million properties, 1.7 million postcodes and heavy computing power has resulted in the most detailed project undertaken into this type of insured peril in the UK insurance industry.

Comprehensive information relating to property, the typical demographic make-up of the street and other key predictors has been combined to more precisely calculate the risk of an escape of water claim.  The output provides insurers with a deeper insight into the risk of an escape of water claim for enhanced risk selection and better pricing accuracy.

The model has been independently validated by a number of insurers against their experience data and has shown a high degree of predictive discrimination and potential for use as a rating factor.

Benefits include:

  • Better assessment of risk by location.
  • More precise pricing and rating.
  • Gaining insight into postcode areas where you have no experience data.
  • Discovering where you need to modify your rates to reduce exposure in higher risk areas and to optimise your profitability.

To find out more, please contact us on 01926 421408.

Will Summer ’16 bring a surge of subsidence claims?

deckchair squareThere was a lot of speculation by the press after Easter that Summer 2016 would be the hottest for 40 years.  Several statements were made by long range weather forecasting companies in the press that the UK would be headed for a long, dry and hot Summer. In contrast, the long range forecasting model from our data partner Weathernet indicated this Summer to be mild but much wetter than average. Given the extremely wet start to June, Weathernet appear to be right and a surge in Subsidence claims seems unlikely at the moment.

We haven’t had a surge in Subsidence claims for over a decade and these have been more frequent in earlier decades. What should insurers expect when we do get the right conditions for a surge in subsidence claims?

The British Geological Survey (BGS) estimates that 1 in 5 homes (or 6.5 million) in the UK are at risk of subsidence.  Houses built on clay soil are particularly susceptible due to the clay soil shrinking during periods of drought.   It is estimated that around 70% of subsidence claims are as a result of clay shrinkage. Other external causes of subsidence are low rainfall, influence of trees and other vegetation next to properties, leaking drains and erosion due to flooding.

drought smallThe ABI statistics show that UK property insurers receive around 35,000 domestic subsidence claims in a normal year, at a cost to insurers of around £250 million.   With an average subsidence claim having a value of £15,000, insurers need to gain a deeper understanding into the potential risks of subsidence claims.

What can the industry expect in an event year?  The dry summer of 1989 resulted in the number of claims reaching 60,000 for the period 1990-1991.   At this peak, subsidence claims surpassed over £1.1 billion in today’s money for one year. Subsequent hot, dry summers of 2003 and 2006 also led to an increase in subsidence claims and large costs to the industry; with 54,100 claims in 2003 costing an estimated £400 million and 48,000 claims in 2006 estimated to have cost around £301 million.

The construction industry and loss adjusting industry have been become much more efficient at managing claims and carrying out remedial action cost effectively, so the average subsidence claim size has dropped in real terms. However, the same volatile cycle in terms of the number of claims related to weather keeps recurring and when we have had a dry summer this has resulted in a spike in claims compared to the previous year.

Whilst we haven’t experienced an event as extreme in terms of number of claims since 1990-1991, climate change may make claims volumes in the future much more volatile. It is this volatility that can take an insurer by surprise and hit the book hard, turning a promising set of numbers into a poor result for the year.

Legislation relating to solvency requirements and pressure to prove capital adequacy has prompted many insurers to make increased use of mapping technology and external data models to understand their exposure to a ‘worst case’ scenario.  This type of analysis involves an insurer comparing the vulnerability profile of its book of business and its geographic concentration in the context of a ‘worst case’ scenario. The problem is ‘what is a worst case scenario?’

This question is difficult to answer and would be slightly different for each insurer as it would need to be answered in the context of the property profile of each insurer’s book as this would have a marked effect on the degree of vulnerability to subsidence risk. Property vulnerability and understanding which policies are prone to making a claim is a large part of the overall risk profile. For example, it is worth making the point that areas of modern housing are much less likely to be affected. Also areas of older housing that have been hit in the past will have had the most vulnerable properties strengthened via partial or full underpinning. New properties are built to different standards with deeper foundations than certain older properties and so in general have lower vulnerability. Property type is also important, for example, single storey dwellings or Bungalows are lighter structures and so in general these are more vulnerable to damage through smaller amounts of ground movement than say a 2-storey or heavier structure.

Business Insight use detailed property data together with vegetation and tree data, geology, long term climate data and claims to model the level of subsidence risk for insurers. ‘Drought Insight©’ is licenced by a large number of household insurers and is recognised as the market leader in providing insurers with a deeper understanding of exposure to drought related subsidence claims.

For more information about managing subsidence risk, contact us on 01926 421408.

Product Focus – Accidental Damage

Gain an unrivalled perspective into the distribution of accidental damage risk across the UK

Business Insight has launched a new data model to help predict the relative risk of accidental damage claims across the UK covering lifestyle, property and geodemographic incidents.

Working closely with a number of insurers and data partners, Business Insight has utilised PhD level mathematical modelling to analyse highly detailed datasets against historic claims patterns to estimate risk by postcode. Based on a large sample of actual claims experience data, Business Insight’s AD Insight© uses the latest technology to analyse claims and predict annualised claims frequency by postcode unit.

This model outputs have been independently validated and tested against insurer experience data and have shown a high degree of predictive discrimination and potential for use as a rating factor.

The state-of-the-art maths modelling and computing power behind the model means that the model allows its users to extract the maximum predictive potential from the underlying data.  You can quickly discover how your rates compare in the low and high risk areas.  AD Insight’s powerful modelling capabilities provide users with:

  • Enhanced understanding of accidental damage risk
  • More accurate underwriting of accidental damage risk
  • Better decision making on risk selection, valuation and pricing.

Biggest Storm for several years forecast to hit UK

Significant storm claims across the UK are likely early next week based on weather forecasts combined with Business Insight’s perils computer model ‘Storm Insight’.

The Storm Insight model considers the variation in peak wind gusting across the UK together with factors such as topography, urban density, the local built environment and the likely state of repair of buildings to predict annualised loss estimates right down to individual property level.

Storm Insight is an unrivalled and powerful probabilistic model giving and invaluable perspective into the distribution of storm risk across the UK.  The impact of climate change is likely to result in future storm losses increasing so it is more important than ever for insurers to fully understand risk as they write business in new areas.

Read press release here: Press Release – Significant losses likely based on forecast Storm due to hit UK this Monday