Cat Data

PCS-Canada is introducing a new service that will enable primary insurance companies, reinsurers, brokers and other interested entities to receive, for the first time, industry-wide data about catastrophes in Canada, including both man-made and extreme weather and natural events. Over time, this service will develop a database of historical events assisting insurers in setting more accurate reserves, improve benchmarking, enhance data quality for modelling purposes, promote reinsurance transactional efficiencies and fine-tune catastrophe response plans. The PCS-Canada service will provide a standardized approach for collecting and disseminating catastrophe loss information.

PCS-Canada is a natural evolution of Property Claim Services (PCS). PCS and its predecessor organizations have identified and estimated the extent of insured property damage of catastrophes in the United States, Puerto Rico, and the American Virgin Islands since 1949. PCS is a unit of ISO (Insurance Services Office Inc.). Now PCS, working with Toronto-based MSA Research Inc., has introduced a new independent service named PCS-Canada. Based on PCS’s 60 years of experience, the PCS-Canada service will manage this new system to identify Canadian catastrophes and estimate related insured property losses.

THE QUEST FOR A RELIABLE RECORD

There is an ongoing debate regarding climate change. One argument suggests global warming will increase the likelihood of future catastrophes. Not only might there be more events, but the intensity and devastating nature of these events may increase as well. Should this occur, a system or process designed to help manage such activity is necessary. As one insurance executive said in 2006: “The insurance industry was able to handle this enormous burden [the catastrophes from 1995 to Katrina] because substantial historical data on natural disasters has enabled companies to understand and manage their exposure to such large losses.” The PCS-Canada service will provide that data.

A reliable record of events, costs and claims is needed just about everywhere. This is true not only in Canada but also in Asia, Latin America and the Caribbean. The PCS-Canada service will provide a record for Canadian interests. And it addresses a current limitation recognized almost worldwide; that is, there is often only one inflexible reference point regarding the impact of a disaster. The PCS-Canada service will identify and quantify loss development over time. The service will also assist in highlighting the underlying factors affecting post-catastrophe recovery.

The value of the service includes quantifying risk to give it perspective. For example, in the United States, PCS estimated that Hurricane Katrina resulted in 1.8-million insurance claims being filed. That figure gave the storm perspective. The service will confirm the contribution of the insurance industry to post-disaster recovery nationally. Better information will lead to better management of risk, exposure, and claims-handling processes.

HOW THE SERVICE WORKS

The PCS-Canada service defines a catastrophe as an event that causes $25 million or more of insured property damage, and that affects a significant number of policyholders and insurers. Catastrophes in Canada are likely to involve hurricanes, earthquakes, wild fires, damaging winds and hail, tornadoes and other perils. When such events occur, the service will investigate the impact of the event to determine the extent and type of damage. If the event meets the definition of a catastrophe, the service will assign a separate serial number and define the event in terms of the dates of occurrence, the provinces or territories affected and the perils that caused the qualifying insured property damage.

In the United States, PCS continues to monitor loss development over time if its first estimate of insured property damage exceeds $250 million. The process usually takes between six and 24 months to complete, depending on the nature and reach of the catastrophe. The PCS-Canada service will — until at least the year 2012 — re-survey every catastrophe to ensure that loss estimates become fully developed and provide reliable benchmarks for future analysis.

The new service will focus on each catastrophe and monitor all aspects of the adjustment process, as insurers proceed to resolve all claims related to each catastrophe. Through the years, PCS has learned that any number of issues — “demand surge,” for example — can volve in the aftermath of catastrophes and affect the ultimate payments made by insurers. The service will identify these issues and account for them.

The service will develop and provide estimates of insured property damage for personal, commercial and vehicle lines of insurance for each province or territory affected by a catastrophe. The estimates will assist the insurance industry to set and review loss reserves; deploy field adjusters and related resources; and inform customers, regulators and other interested parties about the total costs of disasters.

The service will provide an estimate for each catastrophe that represents the anticipated industry-wide insurance payments for property lines of insurance, including real property, personal property (contents), time-element losses (additional living expenses and business interruption) vehicles, and inland marine coverages. The PCS-Canada service estimates do not include liability losses, uninsured damage or damage to agriculture or aircraft. The estimates are based on reports submitted by insurers providing coverage in the affected areas. Staff analyzes the information to develop and project the overall industry loss.

The new service will offer a wealth of information about catastrophes, potential catastrophe events and related issues.

WHAT SUBSCRIBERS WILL RECEIVE

The service provides its subscribers with the following:

Severe Weather Summaries

These reports describe potential catastrophe events.

Catastrophe Bulletins

There are several bulletins, including the first bulletin defining the catastrophe to the bulletin providing last estimates.

Storm and Event-Tracking Reports

The service will use these reports to outline the latest information on events that may become catastrophes, such as hurricanes before landfall

Catastrophe News

These include periodic summaries of catastrophe activity, along with news on issues affecting the insurance industry’s response to catastrophes.

The PCS-Canada service team has consulted most industry leaders, and the response has been extremely positive. The service has the support of the Insurance Bureau of Canada, the Institute for Catastrophe Loss Reduction and the Reinsurance Research Council. We welcome their support and enthusiasm for the service. We will work closely with all interested parties to ensure the PCS-Canada service brings value to the Canadian insurance industry.

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The value of the service includes quantifying risk to give it perspective. The service will confirm the contribution of the insurance industry to post-disaster recovery nationally.