Plotting Strategy

The seasons may run on a fairly predictable schedule: winter shows up around the holidays and summer weather is expected from about May to September. The climate, however, is unpredictable.

To an extent, meteorologists can predict a hurricane, flood or tornado, but extreme weather events occur on their own calendar. As climate change continues to make weather patterns less predictable and severe weather events like floods become more frequent, the financial costs and impacts have reached astronomical amounts for insurers. The Insurance Bureau of Canada (IBC) reports that the total loss from property claims in 2013 reached a massive $3.2 billion, partly due to the substantial amounts of flooding that occurred in Canada.

Over the last year, Canada experienced its fair share of flooding: the early-spring flooding in Saskatchewan and Manitoba, the June 2013 flooding in southern Alberta, and the July 2013 flooding in and around Toronto. The flooding caused severe damage to cities, closed businesses for weeks, put people out of their homes, and tragically took Canadian lives.

The IBC lists the southern Alberta flooding as the most expensive natural disaster in Canadian history – with insured damages exceeding $1.74 billion. Ontario’s flooding was also record-impacting, resulting in $940 million of property damage – the province’s most costly natural disaster to date.

The country’s recent history clearly demonstrates the financial and human impact that weather can have on property and casualty insurers, and clearly illustrates a paramount need for insurers to have Canadian-specific flood data.

Having access to accurate historical flood information that is both timely and current will enable insurers to make more informed automated underwriting and rating decisions that take flood risk into consideration. Not only can flood risk to a specific policy be assessed, insurers can also calculate their current exposure within a flood zone to determine if they have the capacity to assume the additional risk.

Such real-time flood information also provides insurers with the ability to conduct a thorough accumulation risk analysis, which includes determining the overall flood risk exposure for their portfolios, the concentration of policies that can be affected by flooding, and the total insured value of all policies that could be impacted should any flood event occur.

UNDERSTANDING FLOOD DATA

Utilizing current flood data allows insurers to fully assess their books of business against the threat of flooding at a more granular level by enabling them to consider the various flood depths and flood zones that exist.

Information such as high-resolution flood data for all major catchments for a number of return periods (say, 1/20, 1/100, 1/200 and 1/1,500 year) and depth bands can provide insurers with an in-depth perspective and a precise representation of the direct impact on their overall portfolios in the event of major flooding.

ADDRESS ACCURACY IS KEY

An accurate address allows an insurer to conduct a precise assessment of its total flood exposure. All policies contain an address and an insurer requires high-precision geocoding that will depict an authentic representation of where that policy address is actually located.

Having the precise and true location of a policy address, in relation to a potential flood zone, its elevation and depth, will allow an insurer to determine if, in fact, there is a flood threat associated with that specific policy, and if so, the magnitude or severity that will occur if flooding were to take place.

As well, this precise address geocoding will help an insurer to accurately determine its true total accumulation of risk that exists within a certain area should a significant flooding event transpire.

By removing the “what if” from the equation, the idea is Canadian-specific mapping capabilities will allow for a more real and exact representation of all accumulated flood risk. And this offers a means for insurers to conduct highly detailed and accurate flood and overall portfolio accumulation risk analysis.

REAL-TIME VALUE

While it is important for insurers to incorporate flood information and data into their underwriting and rating processes, it is also valuable to be able to visualize the location of an individual policy or an entire portfolio in the context of flood zones on a map.

If insurers are able to automate their processes and see their exposures through enhanced mapping tools that depict flooding against their portfolios, it essentially helps answer certain questions: Does this policy land in a flood zone? How many policies are already within a determined flood zone? Should the insurer take on any more policies in this area? Is the current premium calculation sufficient to cover potential risk?

The answers to all of these questions are imperative when an insurer is trying to accurately calculate its total flood risk exposure.

The real challenge for insurers is to pinpoint the precise location of a specific policy and to know exactly where it is in relation to an accurate, historical flood zone, elevation and water depth. Incorrectly assigning the property location could have huge repercussions.

Also, it is important that an insurer knows where each policy is in relation to another in the context of flooding and other situations. For example, it might be fine to have a total accumulation of $10 million within a given geographic boundary, but if an accurate location is not noted, the insurer may think it has only $9 million when, in fact, it is an accumulation of $12 million.

If insurers have access to tools that can provide them with the ability to visualize flood data against their portfolios or their books of business in real time, that capability can also help in other key areas of their businesses, everything from marketing to driving flood awareness and education to their customers, setting appropriate premium amounts to cover potential risk and strategically developing and executing tactics that could help drive new revenue and business opportunities.

Flooding is a major issue and while there is no predictor of where flooding will occur, the frequency continues to rise. Having access to historical data and leveraging high-precision location is key to minimizing risk and impact.