When insurers discuss building resiliency in the face of increasing disasters and crises, the solutions tend to highlight reducing exposure to catastrophic risks or limiting expected loss through better risk selection. However, risk models are not omnipotent. Resiliency, by definition, is not just about how to avoid disasters better; it’s also about the ability to bounce back from disasters better. By investing in ways to help their policyholders do so, insurers can help reduce the mental, emotional, and financial burden on customers while reducing their losses by getting customers back to their daily lives faster. New tools and services focused on mitigation, preparation and recovery after we know a disaster has hit or is underway can increase policyholder resilience.
The financial need for resilience
With the world grappling with a seemingly endless series of severe weather events – tornadoes, floods, wildfires, extreme wind, and more – loss control and loss ratios have been put under the spotlight. Risk models aren’t keeping up with climate change as events previously considered 100-year occurrences are seemingly now 10-year events. The country is breaking loss records on a seemingly regular basis. In 2021, tornadoes cost insurers $5B, the largest annual total loss attributed to tornadoes since 2017. For some insurers, the solution is to exit high-risk markets such as California, where multiple property insurers have left the state amid heightening wildfire risk and regulatory restrictions. However, exiting markets is not a sustainable or viable long-term business strategy, as catastrophes aren’t geographically limited to specific areas of the country. Some insurers, such as State Farm, have created initiatives to help address claims faster, although such initiatives are still limited in their ability to help reduce loss-of-use costs. Preparing insureds with loss mitigation and post-claim resiliency, in conjunction with better risk selection, can help insurers grow their businesses profitably.
Resiliency efforts today
The concept of building customer resiliency is not novel. Carriers, startups and agencies alike have been discussing resiliency for years. The focus to date of most of those conversations and initiatives has primarily been on risk selection, with the lens of preventing or minimizing exposure and damage. Some companies focus on identifying and scoring certain factors that would affect the riskiness and exposure to certain types of catastrophic risks. Similarly, some companies have explored building or leveraging new, proprietary models specific to certain risks. One example is Joe Flood Insurance Brokerage which is underwriting, predicting and scoring flood risk better than incumbent industry models. Delos Insurance, another Avanta Ventures portfolio company, is another example and is underwriting and better selecting low wildfire risks amongst higher wildfire risk pools than existing catastrophe wildfire models, such as the California Fair Plan.
Companies like Eigenrisk and Jupiter Intelligence are trying to help companies better predict their overall climate and catastrophe risks. Liberty Mutual, Allstate and CSAA, among other insurers, have been undertaking better risk selection or risk-mitigation initiatives by partnering with the companies listed above or similar companies.
Startups enhancing resilience for carriers and their insureds
Below are just a few examples of resilience-focused startups going beyond risk selection with risk mitigation and rapid-recovery solutions:
|Company||Description||Notable Insurer Investors|
|Jupiter Intelligence||Jupiter Intelligence provides risk analytics to insurers and has also been working with other entities, including the public sector, to help build emergency plans and citizen engagement.||Liberty Mutual, MS&AD, QBE Ventures|
|One Concern||One Concern has built proprietary risk models that predict not only the risks a particular property faces but also the hidden risks posed to the external networks that a customer may rely on – such as nearby highways or utility providers – to understand what resources might be impacted during a disaster and how to better plan for such an occurrence.||American Family’s impact investment group, Sompo|
|iluminr||iluminr focuses on threat monitoring and understanding the impacts of different threats to a business’s infrastructure.||QBE Ventures|
The companies above are by no means exhaustive; many companies focus on aspects of this space, such as bringing key resources (monetary, utility, human) to areas after a disaster or helping to build better disaster plans. Historically, these types of resilience enhancements have been areas that utility companies and public sector entities have focused on. However, given how vital disaster planning, recovery and claims management are to insurance, insurers should also further invest and explore this space, as some financial institutions and real estate companies are already doing. For example, Morgan Stanley invested in Sesame Solar, a mobile energy grid that has been working on getting energy up and running for communities impacted by disasters, and JLL invested in Safehub, a platform of sensors and IoT data that provides real-time, building-specific structural damage information within minutes following a catastrophic event.
Implications and opportunities
Building policyholder resiliency will become increasingly crucial for competitiveness and financial viability for carriers. Not only could providing policyholders with mitigation and resilient recovery services improve the service experience and relationship between an insurer and a customer but building resiliency could also reduce insurers’ costs and losses from coverages like loss of use.
The concept of going beyond improving the claims process to help manage disaster aftermath is still nascent in the broader resiliency landscape. However, as the examples of some companies and investments above illustrate, the area is gaining traction and investment from the insurance sector.