Risk & Analytics

Oh, the Weather Outside is Frightful, but the Opportunity for Insurance, Delightful

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Do you know what the most common use of smart phones is — beyond of course talking and email?  Well, according to multiple sources it’s, not surprisingly, checking the weather.

Being instantly aware of upcoming weather is now so second nature to us, we often can mitigate the risk much better of being literally caught out in the rain without an umbrella, or heading out on roads we know are prone to flooding. Still, the ubiquity of up-to-the-minute climate insight and Doppler radar has perhaps made us less aware of the profound and deep business consequences of weather more generally, even despite a winter that the North East and South of the US will not soon forget, because of its impact on travel, road safety, structural impact on roofs and general economic impact overall.

There is so much that depends on the weather, from outdoor concerts, sporting events, travel, wildfire potential all the way to seasonal crop yields. We are still very much dependent on the weather, and by most estimates and research, our global weather is becoming more extreme and violent.

Just a few points on the far reaching economics of weather, many of which have impacts for insurance and reinsurance:

This is why the partnership between IBM and the Weather Channel announced last week is so critical and offers so much potential to innovate. Further, perhaps the industry that has the most to gain from harnessing the insights and analytics to make sound weather predictions deep into the future is the insurance industry. For the US, this seems particularly timely and poignant given the recent changes to national flood insurance.

Beyond rates and premiums, this new partnership with the Weather Channel should have interesting implications for how insurance adjustment and assessing risk, as well as offering value added preventative services that can allow insurance to provide its clients services to keep customers loyal. For instance, SMS alerts about road conditions and surface icing reports sent to policy holders via smart phones to help them avoid possibility of traction-related accidents – or suggesting they postpone travel during rush hour by showing an app which calculates real risk under certain weather conditions at given times.  I know that would allow me to make smarter choices with when to drive.

So while the primary value of this partnership and the incredible data it will yield may be in more accurate assessments of risk based on the latest dynamics in climatic data, the most enterprising insurance companies could make even greater use of this data to create those value added services that will delight clients and make for improved customer loyalty by actively helping clients prepare sooner and better for weather, make sure they have the right coverage for their real risks given changes in weather and give their customers insights on their own real climatic risks under different conditions.

Program Director, Cross-Portfolio Services Strategy

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