Australia is once again in the grip of a natural catastrophe.
The Insurance Council of Australia (ICA) declared a Catastrophe for large parts of NSW and South East QLD last week following days of devastating storms and flooding. By Wednesday March 24, 17,000 claims had been lodged, 18,000 people had been evacuated from their homes and almost 200 schools closed¹.
The flooding comes on the back of devastating bushfires last year which ravaged NSW, QLD and Victoria, destroying approximately 18,636,079 hectares, more than 9,352 buildings, and resulting in more than $3.2b in claims¹.
Once again, insurance for natural disasters is in the spotlight
In the coming days and months, there will be the all too familiar complaints of underinsurance, slow claims processing and inconsistent, ambiguous policy wordings.
Conversation author Dr Chloe Lucas suggested these complaints were evidence of
“an insurance system that is not working for far too many people, leading to long term financial and emotional pain”.
And at the same time insurance news outlets are warning that insurers are being presented with unprecedented operational challenges; the perfect storm of increasing complaints and claims costs, a global pandemic and a new wave of new legislation and compliance.
The significant portion of economic losses deriving from floods, bushfires, cyclones and other weather-related events, according to new data from Swiss Re, shows the industry still has much scope to augment, with just 30% of economic losses from 2020 being covered by the insurance industry.
So, in short, the Australian insurance industry has extra incentive for optimising its approach to natural catastrophes.
Is this the tipping point for a new type of insurance?
The calls for industry innovation are getting louder and elsewhere in the world insurtechs are coming up with new solutions and innovative new products. Parametric Insurance is one solution that is complimenting conventional insurance programs to help capture a portion of uninsured losses.
FloodFlash has revolutionised flood insurance in the UK. The client is forced to consider their tolerance for risk in choosing a limit of protection, and the limit of the trigger event to unlock the claim payment.
The primary ‘objective’ source of data that enables this revolutionary new product is a FloodFlash installed IoT sensor which measures flood depths and sends the data to FloodFlash HQ via mobile networks.
In an event that floodwater reaches the client’s trigger depth, the claim is validated and paid as requested, sometimes within 12 hours of a flood event. No-one visits the property to check the damage or haggle over the final claim amount. No hydrologists to determine if the water was stormwater run-off or rising floodwaters. The client receives what was agreed when setting out the policy so it’s much more transparent and removes ambiguity and the cost of assessing a claim.
Similarly in the US and NZ, parametric insurance for earthquakes is creating new value and augmenting the industry’s reach.
Jumpstart insurance makes a “parametric” earthquake insurance available to residents in California, Washington and Oregon.
The monthly premiums are based on the insured zip code and powered by data from the United States Geological Survey (USGS); increasing in cost the more likely it is for a postcode to experience a quake.
Eligibility to receive a payment (insureds can nominate to receive up to $10,000) is determined by “locations that are coded on the USGS shake map as experiencing “severe” shaking–peak ground velocity of 30 centimetres per second or more”.
According to its website Jumpstart offers “low-cost, no-hassle earthquake insurance that gets more people protected” and doesn’t entirely replace the need for traditional insurance but gives the customer the security of knowing they will get cash upfront to “Jumpstart” their recovery.
This month, Kiwi startup “Bounce” launched a similar product in partnership with Jumpstart and with Lloyds as the underwriter.
“Bounce uses real-time GeoNet data to provide fast claims payments which customers need to fund expenses incurred after an earthquake. Bounce tracks an earthquake’s peak ground velocity (PGV), with payment triggered if it reaches 20 centimetres per second and above,” Insurance News reported.
Back in Oz, we have a few start-ups playing in this space who are demonstrating traction, though scaling has been limited by industry barriers.
Queensland startup FloodMapp has developed cutting-edge flood modelling that could underpin parametric flood insurance.
FloodMapp specialises in rapid real-time flood forecasting and flood inundation mapping. It currently provides rapid and granular asset and community impact information and has been deployed for forecasting asset damage, road safety (re-routing and efficient route planning around flooded areas), and for post cost analysis of flooding damage.
Similarly, Insurtech Gateway Australia is currently incubating a geo-spatial data start-up that is developing the capability to respond to nat cats with accurate loss estimates immediately following the event.
Insurtechs are proving to be a unique value generation vehicle in responding to industry and consumer needs.
Analysing the data again…
As the fallout from the current catastrophe continues, we will once again analyse the data to quantify the gap between the economic loss that the free market / insurance industry captures, verse the residual which the taxpayer will support i.e. the scope of opportunity.
We have heard from the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia’s national science research agency, that climate change is adding to Australia’s natural climate variability, driving changes in average and extreme weather, and increasing climate impacts on our water resources, ecosystems, health, infrastructure and economy, both now and continuing into the future2.
Australia has warmed by approximately 1.4 degrees since 1910. A long-term drying event and increases in temperatures are influencing fire seasons, heatwaves, rainfall and flood risk. This, all before we realise the bulk of the additional variable of sea level rises. By 2090, the Australian sea level is projected to rise by between 26 and 82 cm, depending on the level of emissions and how relevant systems respond2.
The data shows that Australia is particularly vulnerable to the increased frequency and severity of nat-cats. Insurtech Gateway receives inquiries from entrepreneurs and scientists from the world’s leading climate science labs who are producing modelling that demonstrate that Australia needs solutions.
So is it time we started having a different conversation about insurance and the role of technology?
If you’re an insurer or an investor ready to back one of these solutions please contact us today.
Sources: Insurance Council Australia Media Centre | Royal Commission into Natural Disaster Arrangements | The Conversation | Insurance Business Mag | Swiss Re | The Guardian