2014

At its core, AIR is a catastrophe modeling company. The risk that natural disasters and other catastrophes pose to the insurance industry is at the forefront of our research and products.

Few lines of business are as complex or as challenging from an underwriting perspective as crop insurance. The sheer number of variables at play—from the impact of the weather across different stages of growth, to the tolerance of different crops to environmental stress, to location-specific farming practices and technological change—make estimating potential crop losses a daunting task.

Hail has been hitting the headlines lately as severe thunderstorm systems moved across Europe, pelting France, Belgium, and northern Germany with damaging hail. But chances are, when you think about catastrophes that cause billions of dollars in insured losses, the first perils that come to mind are hurricanes, earthquakes, or floods. But hail? Probably not in Europe.

You can’t ignore it. Whatever your thoughts on causes and effects, the world’s climate is changing—and this has far-reaching implications for the insurance industry both now and in the future. That’s because changes in the climate and weather patterns have the potential to affect extreme weather events.

When underwriting a policy, how do you guard against adverse selection? How many variables go into your underwriting decision process?

Death and taxes may be certain, but preseason hurricane forecasts are quite the opposite. Last year’s preseason forecasts for above-average hurricane activity were famously wide of the mark, undone by a combination of shorter-term weather patterns over the Atlantic basin that dampened hurricane formation and activity.

Spring is finally in full swing! Aside from the nicer weather, it also marks the end of flu season. In the U.S., this typically lasts from October to May and peaks in February—but of course every season varies.

Late last year the Intergovernmental Panel on Climate Change (IPCC) released its Fifth Assessment Report on climate change and earlier this month, the U.S. Global Change Research Program released its third national assessment of Climate Change Impacts in the United States. Both reports highlight the increased certainty with which climate change has been occurring, its anthropogenic (resulting from the influence of human beings on nature) cause, and its expected continuation.

A year ago, a powerful and destructive EF-5 tornado hit the town of Moore, Oklahoma. Leading the damage survey team that AIR sent out the following weekend, I gained a new appreciation for the destructive force of tornadoes, and severe thunderstorms in general.

The term ‘non-modeled risks’ entered the insurance industry’s lexicon in a big way after a series of major natural catastrophe events in 2010 and 2011 led to significant losses from perils that had not been explicitly modeled. Catastrophe models were well established for Japanese earthquake scenarios in March 2011 when the Tohoku earthquake struck, for example, but none of the widely-available vendor models represented the potential for concurrent tsunami damage and losses at that time. Furthermore, commercial models for floods in Thailand were not available at the time of the 2011 flooding.