IB Talk

1 in 10 homes impacted by catastrophes: what insurers should know

CoreLogic has reported that more than 14.5 million homes were impacted to some degree by natural catastrophes in 2021 alone. In this episode, IB Talk chats with CoreLogic to take a closer look at defining resilience and risk mitigation. Find out how insurers and lenders can leverage the latest technologies and work cross-functionally to better understand this risk, protect homeowners, and enable faster recovery times.

To view full transcript, please click here

Narrator 1: [00:00:02] Welcome to IB Talk, the leading podcast for the insurance industry across the United States brought to you by insurance business.

Narrator 2: [00:00:16] This episode is presented in partnership with CoreLogic. Last year, more than 14.5 million homes were impacted to some degree by natural hazards. How can insurers and lenders better understand this risk and minimize the recovery time frame? To discuss this and more, we are joined by Tom Larsen, principal of Content Strategy at CoreLogic.

Bethan: [00:00:47] Hi everyone and welcome to IBA Talk the Insurance Business America podcast. I'm Bethan Moorcraft, senior editor at Insurance Business. And in this episode I'm joined by Tom Larsen, principal of Content Strategy at CoreLogic, who's going to run through some of the defining impacts from natural disasters in 2021 and explain how insurers and lenders can leverage the latest technologies and work cross-functionally to better understand, mitigate and response to catastrophic weather risks. Tom, welcome back to IBA Talk.

Tom: [00:01:19] Well, thank you, Beth, and I'm excited to speak today.

Bethan: [00:01:22] It's great to have you back on the show. So Tom, CoreLogic has reported that more than 14.5 million homes were impacted to some degree by natural hazards in 2021, which is about one in every ten homes across the United States. What trends are you seeing around the frequency and severity of natural disasters in the US?

Tom: [00:01:45] Okay, well, thank you for that question. Now I know at first to start off, we mentioned our report has highlighted 14 million homes. We've been in the insurance and risk management industry. We've become used to discussing losses in terms of that was $1,000,000,000 event, that's a $500,000 event. And that's because the limitations of technology, we haven't been able to count the underlying homes underneath because but for an insurer, that's the basis of their business, is being able to understand the risk at an individual home. And that's and the technology that was available that can count. We put a number on last year of the number of homes impacted. It's really important because, you know, as we're trying to, you know, start looking at the the trends in severity and frequency, it's the severity to an individual home. That insurance contract is to that home. It's not to the community at large. And we're able our technology that we've been able to and we demonstrate in this report highlights that we can actually start looking at it and understand those trends at a finer, granular nature. As far as what are the trends? Now, there are many challenges for an insurance company. We have the natural catastrophe trends and then we have the regulatory and societal challenges. We see some of the trends that are our clients are working with are some of the changes to the assignment of benefit laws, which have changed the likelihood of clients to make a claim. And so some of the challenges on the adjustment for our clients, but we are seeing overall an increase in the loss, the frequency of these types of events and how many homes are affected. And so it remains a concern is can we measure these very well and help our clients manage their business as they can continue to strive to offer really good insurance products for homeowners?

Bethan: [00:03:49] It's interesting because anyone who has access to a newspaper or the Internet can see that these things are happening. Hopefully it hasn't happened to them personally. But, you know, there are what is known as primary perils and then also secondary perils impacting homeowners across the US. And Tom, please, could you explain the difference in those and where the losses are particularly occurring?

Tom: [00:04:14] The hierarchy of primary and secondary perils, certainly, than if your house were burnt down, you would not be suffering from a secondary peril. It was your home is destroyed. But what what we've done, you know, one of the trends is we've been able to do much better job of managing and helping insurers and communities understand and anticipate the risk from these types of perils. So these types of disasters and what that means is no longer are we only focused on the the really headline driver perils of earthquake and hurricane, which are vast, very large scale events that could impact 3 million homes. The reconnaissance technology necessary to be able to understand that that that fire where 1000 homes burnt down or last night's hailstorm impacted 250,000 roofs, it's that technology that no longer do we have to have that characterization. No, that's a primary peril to secondary peril. These are all important perils in this. We are technologically enabled so that we can help insurers manage that. And it's really important because the managing it is we still don't know the way to avert these these weather catastrophes. They occur on their own schedule. But what an insurer can do is be able to. Plan and respond in a timely manner to keep their policyholders safe and in safe homes. And so that's where this technology is. And we're hoping to be able to eliminate this, that the hierarchy of these perils and helping, especially when you acknowledge that what was formerly thought of as a secondary peril, like hail is is is a driver is perhaps the largest driver of loss from natural catastrophes to homes in the US today.

Bethan: [00:06:19] Mmhmm. It's certainly interesting. So, Tom, I'd like to dive into the technology in a bit more detail. So how can insurers and lenders better leverage some of the latest technologies to understand and, as you said, manage these risks?

Tom: [00:06:39] Well, first and foremost, one of the technologies that we really leveraged in our report, our 2021 catastrophe report, was weather reconnaissance technology. This weather reconnaissance technology is enabling it within 24 hours, enables clients to know how many homes were damaged. And moreover, they know quantitatively at what level of damage occurred that helps them in their assignment of responsibilities for claims agents. No longer are they. It reduces the level of surprise that an insurer has. Oh, we didn't realize the three, five, seven days after the event. We didn't realize that many claims were going to occur. We can help tamping down those surprises with better and better weather reconnaissance. And that's one of the key technologies. It's when I say weather reconnaissance, it's broad. It's it goes far beyond just know, aerial mapping mapping and satellite mapping. And it goes down to detailed LiDAR flyovers and processing of that data really quickly. And also includes real time processing of weather radar, which where we get some of these signals of what is really occurring. But and beyond that is some of these tools are helping insurers know ahead of time and be able to assess the risk better of a home before the event occurs. Because that's when we can have the biggest influence on how to reduce the risk is not to wait until the event occurs. And so the level of data that we're able to get an insurer can use right now to know and assess that this home is more vulnerable than this one, so that they can offer the proper incentives to perhaps coax a homeowner to do the proper strengthening of their home. So all told, there's a a lot of different types of data reconnaissance, whether we have so geographic reconnaissance and then home it's understanding the data that's that comprises a home. And all of those are helping us get to a point where there are fewer of our homes that are destroyed or damaged after an event and improves the likelihood that we can maintain the continuity of communities. And one aspect of what we call resilience.

Bethan: [00:09:11] Yeah. Tom, you mentioned that sort of technology is helping homeowners and insurers to be proactive when it comes to risk mitigation for sort of weather perils. Could you maybe share some examples using different perils across the US that that we've seen in recent years and potentially some ideas about how we can incentivize homeowners to really take part in those sort of risk mitigation activities?

Tom: [00:09:42] Absolutely. First, I'll start off with an example of what we want to avoid. Hurricane Andrew occurred in 1991. It was absolutely devastating. Devastating hurricane. Within days after the event, the general consensus was they thought it was about $1,000,000,000 of damage in tens of thousands of homes. Every two days you'd open up the paper and the loss would keep going up and up eventually and end at about $16 billion. So it doubled four times. And the consequences of being surprised like that and having to just keep on having to rejigger it. It was the human suffering of people who they're looking for. Immediately, your insurance provides you the rebuild for your home, but also is part of the insurance policy. Is the the funds for an emergency housing if you're if you lost your home and that delay is a lot of human suffering that didn't have to occur. So what are some of the examples that we do today right after Hurricane Harvey in 2017? We it was it was devastating the floods, but it's a flood and no one has knows the scope. Is it 1000 homes? 10,000 homes really quickly entered into within a week it entered into the dialogue. It was more than 300,000 homes were flooded. We put a number on it. Once you get a number, we have the resources. We know there are plenty of people can take that and start going. Is that what do we need to recover? And I think that Hurricane Harvey, as devastating as it was, was a really good recovery story. It was very broad. And the devastating the losses were high. But the losses to community the community continuity was was good. So what do we have today? What's the equivalent today? We have a large thunderstorm that might be going across the central of the US. And within 24 hours, we'll have a good characterization on how many homes were likely to have been damaged by hailstones. Now the damage to from hailstones is to the waterproofing of the home. The sooner you get to repair, that is the sooner you have removed a leak potential because that same convective storm could be followed in a few days by a rainstorm that would cause consequential damages so that we can mitigate the consequential damages because we know what happened when it happened. It's and it's those types of events. We think of a wildfire. The wildfires are that's particularly challenge right now. Since 2017, we've had a lot of very large wildfires. But insurers can do a better job when they have the information at their fingertips today with remote reconnaissance. Insurers have a can keep it up to date on a daily tally of how many homes, how many of their policyholders did incur a loss and how many can they serve? Because at the back of it is the insurance business. It's a product. And insurers strive to have a superlative product for their clients that that claims experience. It's. It's one of the few experiences an insurer has with their policyholder. Most of most of our experience with our with our insurer is the time when we signed the original policy and then on the annual renewal date. But we never see a human being. When you get a human experience, which is the claims, that's where a an insurer gets the opportunity to demonstrate the superior product that they're offering.

Bethan: [00:13:40] That's, as you said, such an important part of the insurance value chain. So, Tom, I think based on everything that you've shared, the end goal of all of this is to improve resiliency, to build out future resiliency to weather disasters in the United States and worldwide. What role can you sort of talk me through the different roles that each stakeholder plays in the equation? So I'm thinking the insurer, perhaps the lender, the government, the homeowner, how what roles do they have to play in building resiliency and how can they sort of bring that all together?

Tom: [00:14:25] Well, let's go through some of the strengths, each of these stakeholders. They bring a parcel of their insights and strengths. The insurer insurer brings in their risk management focus. The insurer has the in aggregate, the best information really understands the risk of that home and that home, because they've got the data and the mechanism to be able to do it. So that's the insurer can really guide us as to what is the real risk. Now the lender he that they're less focused on understanding the risk, but they're that lender. It's about the cost. And so they can help quantify be able to translate it because the insurer might tell you, oh, that's an extra $30 a month. But the lender can also be able to tell you that's going to since you have a lower risk of mortgage defaults, you can save some money from it. So it's an important part of how you cost benefit analysis to really understand the insights from the lender that the lender can bring. The government has a broad focus really trying to the government's mandate is to manage the whole tribe, not the individual home, but try to keep the continuity of communities together and can help us help guide us if some of the adverse consequences if we allow certain communities to. For whatever reason, if they don't get adequate strengthening and the homeowner itself, that's their home, they they need to be focused. There are a lot of activities that a homeowner can do immediately before and after a loss to to mitigate it. Now, so those are some of the core, the insights that they each bring to it. Where are we towards resilience? Yes, we are going to be relying in the future. We, our tribe here on this planet is we are subject to climate change. Climate change is a a particularly insidious peril. It's a it's not a peril on its own. It influences all the other perils. But what it brings with it is it means that we can't we can no longer rely strictly on our intuition. It's one of the foundations of certainly human patterns and decision making is that we rely on our experience base to make a decision on what's going to happen in the future. And that's been good. That generally serves us. But now we talk about climate change, where what is going to happen in the future is not been. What is happening in the past were divorced from our intuition going forward and it's going to that will be a big challenge for the resilience the insurer as a the risk taker or the the risk quantifier as it were, is going to have to take a role in communicating and helping people deal address that lack of intuition. It's counterintuitive, some of the changes or certainly because we want to put a number on it and that that will be a role that insurance will do. Because, again, they're that risk their risk manager that we skill that brings the lender. The lender has a really important role into climate change, into the future, because when we start talking about some of the activities that climate change and we think that it's going to be ramping up and be stronger, the long term cost, the lender is more focused on the longer term, your mortgage is 30 years. So the lender is going to be able to start helping us understand what the financial costs and potential benefits of doing alternative activities so that the voice of the lender will be very important into the future of the government. There are will always have a role. There are always be people through no fault of their own that need more help. And it will be it will be the role of the government to help us identify them and make sure that we're all the all the tribe makes it through through climate change. And we can. And but the homeowner is going to have to accept the burden of really leaning in and trying to understand this. It will because we're we're breaking from experience. The homeowner will have to pay attention and make sure that they understand. It's not just the the emotional climate change is happening, but what's the quantifiable what are legitimate activities that I can do that can mitigate my risk and help me survive?

Bethan: [00:19:03] Thank you, Tom. Yes, I think really the one good thing is that the changing climate has really risen to the top of the agenda in the past year. We've made good progress towards resilience. But as you've shared today, there's still a long way to go to improve sort of how we mitigate and respond to climate change and weather related perils. And technology is certainly playing a big role in that. Tom, thank you so much for sharing your insights with us today. Lots of great info there for our listeners to take away.

Tom: [00:19:34] Well, thank you, Beth.

Bethan: [00:19:35] Thanks also to our listeners for tuning in. I'm Beth Moorcraft, senior editor at Insurance Business. Make sure you check out the rest of our podcast, TV episodes and Daily News at www.insurancebusiness.com/us.

Narrator 2: [00:19:54] Thank you for listening to this episode of IBA Talk. For more from Tom and the team at CoreLogic, visit them at corelogic.com. That's coreLogic.com for more.

Narrator 1: [00:20:08] Thank you for listening to IB Talk. For the latest episodes be sure to follow us on SoundCloud, Stitcher and Apple Podcasts.