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 Update – Data Dimensions

Data Dimensions’ is the latest data product offering recently launched by Business Insight.

Using principal component analysis across a vast database of demographic variables, ‘Data Dimensions’ is a suite of orthogonal or uncorrelated scores by postcode describing different demographic features such as wealth, affluence, family composition, rurality and industry.

Every neighbourhood in the UK has a different set of scores that uniquely describes each location across the range of factors in the ‘Data Dimensions’ product. The scores can be easily included in risk pricing and rating models to increase accuracy and to fill gaps where insurers have little or no experience data. Our initial tests against experience data for both motor and household have shown ‘Data Dimensions’ to add considerable value for risk selection, underwriting and pricing.

For more details or to see a demonstration, contact the sales team on 01926 421408

Flood, building on flood plains and the profile of those at risk

It is estimated that there are currently 1 in 6 properties or 4.7 million properties in Great Britain at risk from flooding, with 2.7 million properties at risk from flooding from rivers and sea alone.  Between 2001 and 2011, around 200,000 new homes were built on land that has a significant chance of flooding, either from a river or the sea. During the 1990s, this figure was even higher as there was less focus on flood and no obligation on planners to carry an analysis of flood risk at the time.

After the devastating effects of last winter’s storms and the subsequent costs to the insurance industry, building residential properties on flood plains continues although admittedly not in the same volumes.

Recent figures obtained by the i newspaper under the Freedom of Information Act show permission has been given to build more than 1,200 new homes on flood plains despite official objections from the Environment Agency about the risk of flooding on such sites. With all the publicity and available data relating to flood risk, it does seem slightly unbelievable that construction even at these levels is allowed to proceed, or at least without an obligation on builders to ensure that properties are built to be flood resilient.

New housing built in areas thought to be protected by flood defences may also be more at risk than first thought. Flood defences are built to withstand a certain magnitude of event, e.g. a flood with an estimated return period of 1 in 200 years, yet the underlying techniques modelled from relatively small data samples are based on extreme value theory which is sensitive to the underlying assumptions. I know there are still some people in senior roles in the world that are sceptical about climate change, however it does undermine the accuracy of these models and mean that defences may be more vulnerable than when first built or constructed. A good recent example being in Carlisle which flooded in 2005 (1925 homes and businesses) with flood defences that were breached. The defences were improved at a cost of £38 million yet these failed again in 2015 following a more extreme event than had been considered in the planning.

Profiling those areas hardest hit by flooding
We used our geodemographic risk profiling tool Resonate© to analyse the demographic profile of those affected by the Winter floods in 2015 in Carlisle and areas of Cumbria.   Our analysis revealed that there was an over-representation of properties flooded from working class and disadvantaged rural areas across the distribution of those hit.

Further analysis of these areas revealed a large number of properties flooded were from the Resonate lifestyle group ‘Rural & Village Survivors’ and those worst affected were predominantly from ‘Blue Collar Heartlands’; which are characterised by blue-collar workers in pre-war terraced properties where the proportion of terraced properties is almost thirteen times the UK average percentage. There is a high proportion of this type of neighbourhood in Carlisle.

Looking at all the areas across the UK that have a high risk of flooding does reveal that there is an over-representation of older, disadvantaged and more vulnerable neighbourhoods. In the future, we will no doubt continue to see more occurrences similar to that of Carlisle with poorer and more deprived neighbourhoods being disproportionately hit.

Conclusion
As long as there is still a demand for new houses, building on flood plains will continue. There is an increased demand for new housing particularly in the South East in areas where flood defences do exist, though climate change may limit the level of protection envisaged when some of these defences were built. A geodemographic analysis of the make up of the high-risk flood areas is quite startling – higher volumes of older, more disadvantaged and more vulnerable members of society dominate.

This highlights the important role that insurance plays and how the availability of affordable flood insurance for everyone is essential.  The introduction of Flood Re goes some way towards offering flood-prone properties a degree of cover but does not yet guarantee affordable insurance for everyone. The Government will need to put more investment in maintaining and improving flood defences and will need to look at helping make properties in the highest risk areas more resilient to damage from flooding.

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.

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.

Plum Underwriting select Business Insight’s risk mapping software to enhance its risk selection

plum logoInsurance technology provider Business Insight announces that Plum Underwriting, the specialist and non-standard household insurance managing general agent, which is part of Global Risk Partners Limited (GRP), has chosen their newly launched risk mapping tool Location Matters© and geographic classification model ‘RESONATE© to enhance its risk selection and customer analytics capabilities.

Read press release here: Press release 12 April 2016 Plum Underwriting

Leveraging the value of Big Data

big data square.jpgIt is claimed that 90% of all data in the world has been created in the last two years. Companies are switching on to the strategic and commercial value of harnessing this data.  A recent IBM survey (October 2015) found that 74% of insurance companies report that using big data and analytics is creating a competitive advantage for their organisations.

One way to maintain that competitive edge is by leveraging and maximising the use of big data. With much better access to data from a wide variety of sources, Insurers are able to gain new insights now into risk at a highly granular level.  Data can be used to spot and analyse trends, uncover new patterns and anomalies and identify, measure and manage risk exposure. This information can then be used by Insurers to gain a comprehensive understanding of markets, customers, products, distribution channels and competitors.

The Business Insight team has extensive big data experience and provides insurers with tools to address key business challenges such as business growth and benchmarking products and position in the market.  Our market leading products support quote enrichment, risk selection and claims validation such as ‘Location Matters©‘, one of our most recent solutions that combines geographic risk mapping and analytics with highly granular lifestyle, demographic and perils data to provide powerful new insights. The software combines state-of-the-art risk mapping technology with a complete set of highly granular perils models including best of breed data from Business Insight and partner suppliers from across the industry.

Please contact the team at Business Insight for a demonstration on 01926 421408.

Post Magazine Article: Business Insight unveils risk analysis tool

post article mapTechnology provider Business Insight has launched Resonate, a new risk analysis model that classifies every address and neighbourhood in the UK.

The tool classifies every address into a range of lifestyle categories to help improve the accuracy of risk rating, target marketing and underwriting.

At the tool’s lowest level, consumers are grouped into 1,000 different demographic clusters that can then further be aggregated into 11 lifestyle themes that range from Affluent Achievers to Breadline and Benefits.

All neighbourhoods have been grouped into a number of similar categories bases on millions of pieces of data covering a wide range of demographic, environmental, lifestyle and socio-economic factors.

Read full article here: Post Online 20 April 2015

 

Groupama Insurances cracks freeze claims with innovative freeze risk model from Business Insight

Frozen squareEurope-based Groupama Insurances has invested in Freeze Insight, a new computer model that predicts the relative risk of freeze related claims across the UK.

Freeze claims in the UK during the winter of 2010/2011 are estimated to have cost the insurance industry £1.4bn.

The model has been developed by technology firm, Business Insight, and is based on 100 million historic temperature records, 26 million properties and 1.7 million postcode locations.

Read Article here: Groupama Insurances select Business Insight’s Freeze model