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When Disaster Strikes, Much Depends on Data

I know for most people, insurance is one of those dreary things you have to buy, and hope to never use.

But I see a vibrant industry in the midst of technological transformation—something I think is being revealed in its response to Hurricane Harvey in the wake of the devastating destruction in Texas and Louisiana that is affecting millions of lives.

On the ground in Houston, for example, some insurance companies are ready to deploy fleets of drones to visually inspect and evaluate property damage. This should speed up the claims process to help people rebuild and recover as quickly as possible. In many cases, policyholders can file claims through a mobile app on any smartphone.

Behind the scenes, computing power and data analysis have helped make the insurance industry more resilient to large, catastrophic events such as Harvey, which should provide reassurance to both policyholders and investors.

From drones to data, technology helps harness the unpredictable

Information technology and Big Data are reshaping how insurers do business, from underwriting and policy administration to claims and risk management.

For instance, catastrophe modeling is a kind of super-charged weather forecasting recently adopted by insurers and reinsurers to better assess exposure to losses in any particular book of business. It simulates the effects of hurricanes, earthquakes and meteorological events, factoring in variables like geography and building materials.

The modeling can also account for support of government sponsored programs and reinsurance arrangements, allowing insurers to more quickly size up any potential shortfalls on the books.

As an industry, insurers are increasingly served by the power of accelerated computing, such as graphics processing unit (GPU) technologies, to run large-scale simulations. This increases their ability to analyze impact of catastrophes, whether a natural disaster or a financial market crisis.

Professional service companies like Aon, a holding in MDPIM International Equity Pool and MD Growth Fund, are utilizing this technology to help clients in the insurance industry become more sophisticated in managing capital and risks and to improve financial reporting.

Sizing up a hurricane’s effects

While events in Texas and Louisiana are still unfolding, it appears that damages from Hurricane Harvey will be on the high end of estimates made prior to the storm hitting land, but the insurance industry should still be able to manage the losses.

With insured losses estimated at US$10 billion-US$20 billion, Harvey is unlikely to be large enough to reset reinsurance rates, according to one early account by sub-advisor AGF.

In the short term, markets are reacting as expected: According to AGF, insurance carrier stocks have historically tended to underperform immediately following a major catastrophe (given loss uncertainty), but outperform the overall market three to six months after, as loss estimates come into focus and rates stabilize.  

Of course, we’ll know more as the full story unfolds in the weeks to come. Our most pressing thoughts are for the lives of those who have felt the storm’s destruction, and the relief effort underway.

The future of insurance may be something you wear

There’s no question technology will continue to have a profound effect on the insurance sector, and how we know it.

Here in Canada, some homeowners insured by Desjardins Insurance have sensors at home that can alert them via a mobile app if a water leak is detected or a pipe is at risk of freezing. And Manulife Financial Corp. has started giving customers in the U.S. and Canada fitness trackers as part of its Vitality program, to assess risk and offer financial incentives to those who lead a healthy lifestyle.

And there’s more on the horizon, with smart homes, self-driving cars, the Internet of Things, and wearables among the possibilities.

Insurance is no longer the staid, old industry defined by limestone towers. Innovation is allowing it to better address emerging risks and serve policyholders in time of need.  I personally look forward to exciting opportunities ahead, in this new age of discovery.