Why P&C insurers should hire meteorologists

Given the increase of natural catastrophe losses in Canada, insurers would be wise to consider hiring a new breed of property and casualty professionals — meteorologists.

“You’re using weather forecasting in your daily life,” Agis Kitsikis said Thursday at the Insurance Bureau of Canada’s Financial Affairs Symposium (part of the IBC’s InSight Summit) in Toronto. “It’s quite simple to link weather forecasting with, let’s say, impact loss forecasting for insurance purposes.

“If you are not doing it yet, if you are not using weather forecasting to forecast [loss] impact [related to] upcoming [Cat] events, my advice would be to start thinking about it now, because the technology is definitely there.”

Kitsikis is senior vice president and P&C market head for Canada and the English Caribbean at Swiss Re. He was a panellist speaking about climate modelling in a panel discussion on climate and natural catastrophe risk.  

Also on the panel was Carolyn Murnaghan, a partner and head of the strategy, risk and transactions team at Deloitte. Murnaghan told the summit her financial firm has already started to hire experts on weather forecasting as part of its team to assess climate risk and predict losses.

“We actually now have meteorologists in our team,” said Murnaghan, whose team advises on the Office of the Superintendent of Financial Institutions (OSFI)’s B-15 Guideline on Climate Risk Management. “Who knew that we would actually need that as a day-to-day skillset we’re using?”

Murnaghan cited the example of forecasting the impact of U.S. hurricanes, and Florida hurricanes in particular, as a situation when weather forecasting expertise proves handy.

“It’s well understood, and the forecasting is quite good,” she said. “We are now, when there’s a hurricane coming and making landfall, forecasting losses for more than hundreds of insurance companies every six hours.”

For improved accuracy, Murnaghan added, it’s important to rely on multiple weather forecasts, because forecasts change quickly over short periods of time.

“You don’t have one weather forecasting,” she said. “You have maybe five of them. So when the losses change by 10% or 20% between forecasts, don’t be surprised. It’s like weather: you think the weather will be nice — well, the weather changes, especially in Canada, during this time of the year. I think you are all super-familiar with it, and that’s the same with loss forecasting.

“So don’t be surprised if you…receive a loss forecast and, six hours or a day after, it changes by twice or half of it. That’s how things work.”

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Shift in focus

Weather and loss forecasting is one part of the P&C industry’s broader effort to help clients reduce their NatCat losses, the panellists observed. When it comes to dealing with large losses, the industry is not as reactive as it used to be, said Adam Podlaha, head of Impact Forecasting at Aon.

“Of course, we need to find ways to cover the [NatCat] risk and address it, but the first thing is to reduce the risk,” he said. “What we’ve been doing as a society in general until now is to think about the situation after the fact. So, waiting for the losses to happen and then react to them is something that…is not sustainable.”

And so, the P&C insurance industry is increasingly providing clients with incentives to promote resilience and reduce damage before the storms hit.

“We’re seeing …increasing use of incentivization and organizations really working through how to make resilience a part of the commercial [insurance] proposition within the insurance products they offer,” said Murnaghan. “So, finding ways to build out business cases, calculating the value that could be derived — both for the consumer and in terms of prevention of loss or loss reduction — and finding ways to quantify that, so that it can be looked at alongside other business cases.

“This is something that when we’re working in the B-15 space. We’re aiming to find ways to actually add some business value through implementing those expectations. And this is one of those areas where there can be a part of a commercial proposition through incentivizing new types of behavior.”