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.

The floods of Summer 2007: 10 years on

Whilst the UK has been enjoying very hot temperatures recently, 10 years ago it was a different story.

The Summer of 2007 was the wettest since rainfall records began in 1766.  Heavy rain triggered two extreme rainfall events; on 25th June and again on July 20th.  The Met Office reported that from May through to July 2007 more than 387mm of rain fell across England and Wales which is double the average for the period. Despite a relatively dry April, by mid-June the ground was saturated and low sunshine levels meant that there was little evaporation.

On 25th June, intense rainfall led to severe flooding in parts of the North East including Sheffield, Doncaster and Hull; areas in which the level of penetration of insurance is low compared to other parts of the UK.  In Hull, over 6,000 properties were flooded and more than 10,500 homes evacuated as flash flooding led to drainage and sewage systems being overwhelmed.  The flooding caused major disruption to homes and businesses with almost half a million people without a water supply for up to 3 weeks and left many residents unable to return to their homes for up to a year.

More heavy rain on July 20th caused flooding in many parts of England and Wales with some areas hit particularly bad such as Gloucestershire, Cambridgeshire, Wiltshire, Hampshire and Oxfordshire where properties were flooded for the second time in less than a month.

 The impact on the insurance industry

The Environment Agency (EA) estimated the total costs of the 2007 floods to be £4 billion.  Around £3 billion of this loss was covered by insurance, making this one of the costliest events to date for the UK insurance industry.   In terms of insurance claims, the ABI reported around 165,000 claims with 132,000 of those claims for damage to domestic households.   Thankfully this was a rare event and believed to be somewhere between a one in 500 years and a one in a 1000 years event. This estimate though is very much a guess given the amount of data used to base this estimate on and with a changing climate calling into question the assumptions underpinning the analysis.

How flood risk mapping has changed since 2007

Whilst it is not unusual for the UK to experience extreme rainfall in the Summer, a much higher proportion of the flooding of Summer of 2007 was due to surface water flooding rather than any other type of flood risk (e.g. river flooding). By its very nature, surface water flooding is very localised and is caused by large volumes of rain water, making it very difficult to accurately predict exactly where flooding will occur geographically.

At the time, there were no surface water flood maps and insurers did not factor it into their ratings.  Today over 3 million properties are estimated to be at risk of surface water flooding in the UK.

Following the 2007 floods, the Pitt Review found that work was needed to improve the management of flooding from surface water and poor drainage.  It also identified the need for surface water flood maps for England and Wales. Subsequently, JBA Consulting developed the first nationally produced model of surface water flooding to supply to the EA.

The Flood Map for Surface Water (FMfSW) in England and Wales was developed in 2009 and included:

  • an additional rainfall probability
  • the influence of buildings
  • reduction of effective rainfall through taking account of drainage and infiltration
  • a better digital terrain model that incorporated the Environment Agency’s high-quality LIDAR data.

In 2013, an updated Flood Map for Surface Water (uFMfSW) was produced.  The new surface water flood map for England and Wales shows the worst-case flood extents, depths, velocities and hazard ratings for the 30, 100 and 1,000-year return period storm events of one, three and six-hour durations.

The EA maps were not intended to be used for insurance purposes to assess the risk to a particular property but were intended to provide an indication of whether your area may be affected by surface water flooding and to what extent.

Lessons learned for the future?

Recent flooding events have revealed the UK’s vulnerability to extreme rainfall events.  Peter Stott, Head of the Met Office’s climate monitoring and attribution team, believes there is strong evidence that extreme rainfall events are increasing and are likely to become more frequent in future years.

The general scientific consensus is, however, that the summer 2007 floods were not a “climate change event” but rather were a consequence of a combination of unusual (but normal) events such as prolonged heavy rainfall and saturated soil which made it unable to absorb the additional rainfall.

One thing that is clear is that this problem is not going away anytime soon. The NFRR (National Flood Resilience Review) concluded in September 2016 that it was plausible that rainfall experienced over the next ten years could be between 20% and 30% higher than normal.

Insurers are ensuring they are better equipped to deal with the impact of extreme weather events by using data models that are based on up-to-date information and that take account of changing risk patterns to better predict, assess and monitor risk. However, this is not just an insurance issue; it involves government, house builders, local authorities and insurers all working together to ensure the UK becomes more resilient to flooding. With a changing climate and potentially more frequent and more severe flood events in the future, we need to make sure that we take action considering what could happen – failure to adapt is not an option.

Current research indicates that if we are not able to control the average rise in global temperatures then we will subsequently see a significant increase in the risk of flooding. For example, failure to constrain average global temperature rises to within 4 degrees will see the overall risk of UK flooding increase by 150%. It’s a problem that won’t go away and one that needs to be addressed now, not after the next cluster of events.

 

Location Matters – the next step forward for underwriting UK property insurance

The increasing challenges faced by insurers include driving business growth in a highly competitive market and ensuring customer loyalty.  Remaining competitive involves optimising underwriting performance, an in-depth understanding of exposure to risk and more accurate pricing. What if there was a tool that could help you do all this?

Location Matters© is Business Insight’s new powerful visualisation and risk mapping tool that gives insurers a unique real time view of perils risk exposure by location.   Using the latest mapping technology, it is an extremely powerful visualisation and decision tool, combining market leading property risk models and demographic data into a single, easy to use, affordable system.

Through interactive maps displaying property location, risk, perils, policies and claims data, Location Matters© is designed to help insurers with underwriting decisions at point-of -sale as well as accumulation and exposure management.

Property risk is dependent on a range of factors linked to location; including the local environment, the types and construction of buildings, local crime rates, the demographic make-up of the area and physical hazards such as flooding or storm. By viewing and analysing customers against hazard data by location, underwriters and pricing analysts are able to have a deeper understanding of risk exposure, have insight into accumulations of risk across their entire book of business and as a result, more profitable risk selection.

Location Matters© is the next step forward for underwriting UK property insurance.  It brings together the best of breed perils and geodemographic data to visualise risk at property level and allows an underwriter to log-in to a web browser from any location and interrogate a postcode (or address) to gain a deeper understanding of geographic risk and the make-up of the local area.

Being able to visualise risk at such a granular level provides a greater insight and accuracy for underwriters but also helps strengthen your market position with a more in-depth view of the risk price as you write the business.

The risk mapping software also has a number of other benefits.  For marketing departments, these include having an accurate and in-depth understanding of their target market to generate new pipelines and a clearer view of where to focus their marketing campaigns.  For claims departments, it can be used to assess the validity of individual claims and also to prioritize claims handling resources which in turn helps to strengthen customer loyalty by focusing efforts on legitimate claims and improving the customer retention rate.

Location Matters© – for a more profitable risk selection and greater exposure management.

Find out more here

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.