Page 39 - Insurance Times November 2023

make it unaffordable to live in certain places as climate data being used and how it's being collected. Property
impacts emerge,” according to David Russell, a professor of intelligence technology has become a big source, writes
insurance and finance at California State University Digital Insurance’s Michael Shashoua, of a large amount of
Northridge, quoted by Grist. When insurance costs soar, the data relevant to wildfire risk modelling. The data can
First Street shows, it severely undermines home values – and be about characteristics of a property itself or the areas
in some cases erodes them entirely. “There’s this climate surrounding that property, and what risks the characteristics
insurance bubble out there,” says Jeremy Porter, head of of those areas present for the property.
climate implications at First Street. First Street also believes
premiums don’t always accurately reflect risk, especially as What should be homeowners’ responsibility for the condition
climate change exacerbates natural disasters. of their property? Does this genuinely raise their risk of
wildfire damage? If surrounding property or land has a
The nonprofit climate research firm First Street Foundation substantial risk, to what extent should carriers be allowed
found that, while about 6.8 million properties nationwide to raise the premium for that property owner? Can the
already rely on expensive public insurance programmes, property owner mitigate the risk with their own
that’s only a fraction of 39 million across the country that maintenance enough to keep their coverage costs
face similar conditions. reasonable?

The report found that insurance for the average California As homeowners continue piling into the state-backed
home could nearly quadruple if future risk is factored in, with Citizens Property Insurance Corporation, regulators have
those extra costs causing a roughly 39% drop in value. The approved proposals that could lead to private insurers
situation is even worse in Florida and Louisiana, where flood pulling 184,000 policies from Citizens, starting in October,
insurance in Plaquemines Parish near New Orleans could go according to News Service Florida.
from $824 annually to $11,296, and a property could
effectively become worthless. UPC, the ninth property insurer in Florida to go insolvent
since 2021, and the largest to do so in 15 years, left many
And there is a potential barrier to adaptation and resilience. of its Florida customers in a similar nightmare, facing what
The structural codes meant to cope with wind speeds of is predicted to be a powerful hurricane season with still
90mph are no longer adequate, says Steve Bowen, chief unfixed, hazardous homes, drained life savings and, in some
science officer at Gallagher Re. He cites instances of wind cases, no insurance to protect them, according to The
speeds topping 100mph into Iowa and Illinois. Moreover, Washington Post.
there are known engineering methods to improve the
structural integrity of homes. His take: Give severe Melinda Huspen of Digital Insurance reports that recently,
convective storms (SCS) the respect they deserve. This peril the state of Georgia pushed back against Farmers Insurance
continues to affect a lot of people, he says, and leads to Co, when it announced that it would drop homeowners with
more pressure on the insurance industry to accurately price older roofs. This development highlights a key aspect of
the risk. Let's get our buildings better prepared, is Bowen’s these decisions – whether an insurer is allowed or should
advice. This doesn't even begin to touch how hail is the be allowed to claw back coverage from those who already
dominant annual driver of SCS losses. In any given year, hail have it.
can account for 50%-80% of insured SCS losses, explains
Bowen. More insurers are relying on AI for climate risk underwriting
decisions, knowing very well that AI can easily propagate
Climatetech: bane or boon? biases and discrimination. The National Association of
Insurance Commissioners recently issued a bulletin with
Concerns have also been raised about carriers’ use of
technology in building wildfire risk models, sourcing data on recommendations for insurers about their use of AI, writes
the risks and feeding that data into models. A public risk Penny Crossman of Digital Insurance. As for how respective
model, supposedly more transparent, has been proposed. state regulators or Congress respond to carriers dropping
Insurers are expected to explain their risk models in a or stopping home insurance coverage, remains to be seen.
manner that most people can understand and evaluate.
Corporate farms more worrisome

The second part of the regulation equation is the type of While the media focus is on homes threatened by fires and

The Insurance Times November 2023 35