The Premium Purge: How to use insurance intel to protect your business through smart-tech
How underwriters might be using the same tools we use to determine risks, and what you can do about it.
The LA fires were amongst one of the top stories as the new year set into play. As of January 30th, at least 29 people have been confirmed dead as a result of the disaster1. The estimated damage and economic loss is expected to be between US$400 billion and US$450 billion making it America’s most costly natural disaster (some are still arguing it was caused by arson).
Of this loss, only US$32 billion worth of insurance premiums covered 12,000 residential and commercial properties2. Goldman Sachs predicts that total insured losses are already estimated at more than US$30 billion3 and many warn that the impacts of this event could trigger underwriters to significantly increase their premiums in other high risk locations like Australia’s bushfire regions, Europe’s river-side cities, or Japan’s earthquake prone lands.
The impeccable timing of insurers cancellation of fire policies in Los Angeles caused many to question the legality and the impact of legislative frameworks against underwriters. Insurance underwriters like State Farm dropped 1,600 policies in Pacific Palisades (the fire’s epicenter that burned 24,000 acres and destroyed 5,316 structures4) and 2,000 additional LA zip codes as recent as July 2024.
Allstate paused sales of new home insurance policies in California in 2022. Farmers Insurance began limiting coverage in California in 2023. Nationwide and its subsidiary, Nationwide Private Client, announced it would stop renewing all homeowners insurance policies in California by June 2025. And Chubb began significantly reducing homeowners coverage in California over three years ago, citing wildfire risks and state insurance regulations5.
Reasons for the drop in coverage included increased wildfire risks, rising costs of doing business in the state, inability to adequately raise premiums due to state regulations, difficulties in obtaining reinsurance, and higher replacement costs.
Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies in California, with over half a million in Los Angeles County alone6.
Statistics on a global scale
Global insurance premiums for businesses have been on the rise, and there's growing concern about certain risk types and businesses becoming uninsurable. Commercial insurance price increased by 1% in the first quarter of 2024, marking the 26th consecutive quarter of increases7 (however, they declined by 1% in Q3 2024).
According to the Global Risk Managers Survey 2024 produced by the Federation of European Risk Management Associations (FERMA), 53%8 of risk managers believe that key business activities and locations will become uninsurable, up from 41% in 20229.
According to the surveyed risk managers, the risks most likely to become uninsurable are climate change-related physical risks and natural disasters (at 73%), cyber attacks (at 55%), and supply chain disruption (at 34%).
As a result, 54% of businesses have changed their insurance buying patterns, reviewing coverage requirements, limits, and sub-limits. 44% of companies are strengthening loss prevention activities, and 30% are attempting to negotiate long-term agreements or policy roll-overs.
When it comes to premium growth and profitability, non-life insurance premiums grew by 3.9% year-over-year in real terms in 202310. In 2023, gross premiums in the non-life sector grew by 12.4% on average in nominal terms and 6.2% in real terms11.
Global commercial P&C insurance lines saw an average premium increase of 8% annually over the past five years12.
These statistics highlight the challenging insurance market conditions for businesses, with rising premiums and increasing concerns about the insurability of certain risks, particularly those related to climate change and cyber attacks. So, where do we go from here?
The uninsurable
The process by which an underwriter gathers information from a business to determine the premium price and coverage is that of insurance underwriting. This involves evaluating the risks associated with insuring the business and deciding whether to offer coverage, as well as determining the terms, conditions, and pricing of the policy. Typically, underwriters will:
Gather information: The underwriter collects detailed information about the business, such as its operations, claims history, financial stability, and risk factors. This may involve reviewing applications, requesting additional documents (e.g., loss runs or credit reports), or conducting inspections.
Conduct a risk assessment: The underwriter evaluates the collected data to determine the business's risk profile and whether it aligns with the insurer's guidelines and risk appetite. In most cases, the underwriter is using proprietary software to help investigate and calculate the risk associated with the business.
Coverage determination: Based on the risk assessment, the underwriter decides on the coverage that can be offered, including any modifications or limitations to mitigate risk.
Premium calculation: Finally, the underwriter calculates an appropriate premium based on the assessed risks and desired coverage.
However, in an increasing number of scenarios, the results are grim. More and more businesses are discovering elements of their business as uninsurable. This can be anything from high cyber risk, to geographic locations. Premiums can rise significantly, or - as we’ve seen in California, underwriters choose not to insure at all. Subsequently, businesses fall into the uninsurable market segment.
We have seen that some brokers (those acting as meditators to the insured and the underwriter) are looking at innovative ways to support their clients. This can include on-call crisis advisory services, improved cyber coverage through expert consulting, or even lower graded premiums from newer underwriters.
Businesses can still find themselves one step behind underwriters who seem to prognosticate risks with remarkable accuracy. One explanation for this could be the proprietary software they’re using during risk assessments. But despite them being heavily utilised by underwriters for decades, they’re becoming more accessible, and more affordable to private organisations as a result of evolving technology and cheaper artificial intelligence.
How to predict risks, to pinpoint accuracy
Over the last few months, our team of analysts have been researching and testing a handful of risk outlook tools. One in particular is Urban Intelligence (UI), a startup based in Christchurch, New Zealand. Their head office is a hundred metres from ours, and they have been kind enough to demo their impressive tool on many occasions. The software is intelligent. It gathers billions of datasets to create an idea of risks, which are then portrayed on a well designed user interface.
When logging in, it’s UI’s 3D Scenario Viewer that is striking and engaging to first time users. It offers a way to spatially explore assets under multiple shocks and stressors, both now and in the future. The ability to visualise risks in a dynamic, interactive environment would make it easier to understand potential threats and develop informed resilience strategies off the back of that data, a system they call their Direct Risk tool.
The platform also provides Area-Level Statistics, which analyse multiple hazards across all assets within a given region. This broader perspective enables users to assess cumulative risks, compare exposure across different locations, and prioritise response efforts effectively.
We tested this on our own office location in Christchurch City and came to understand that some key access routes for our staff would be cut off in a moderate flood should our local river burst its banks. This small bit of information influenced our team to store supplies should our staff need to stay overnight in the office.
Further afield, we explored RiskWatch13, who use predictive analytics to identify potential risks before they materialise through AI and machine learning algorithms. Similar to UI, they provide customisable risk matrix for tailored risk assessment, integrated compliance management with prebuilt frameworks, and advanced reporting features for detailed risk insights.
Additionally, there is Archer14, who leverage big data analytics to provide real-time risk monitoring and predictive modeling. MetricStream15 who use machine learning algorithms to analyze historical data and predict future risk patterns. And, Earnix whose platform can process billions of data points in real-time, allowing for highly accurate and personalised risk assessments16.
Suppliers like Urban Intelligence invest significant time collecting data from all manners of sources including public and private organisations through the use of APIs17. UI layer multiple data sources to create a single picture for the user that can be manipulated to provide risk scenarios. It’s these same systems that are being used to high effect by underwriters. Isn’t it time we utilise them too?
An insurance alternative
Software adoption and implementation is still considered a complex and resource intensive project. Our team sees regular examples of organisations refusing to commit to technology because of similar hurdles. But, this puts them at risk of being left behind against competitors, insurers, and innovators who see the value in technology.
For those unable or unlikely to implement new software, you are left with only one alternative: build a foundational layer of resilience.
Risk Management, Business Continuity, Crisis Management, Incident Management, Emergency Management, Information Disaster Recovery (ITDR) are all the focus areas required to be considered a truly resilient organisation. However, none of these are practical until validated and maintained atop a culture of resilience. Such a thing can bridge the gap for those unable to insure particular areas of their operations.
But the opposite is true. For those who can present official, robust evidence of completing these activities regularly, negotiations can be made to an underwriter for a cheaper premium.
In fact, on some occasions, we have mediated several negotiations between underwriter, broker, and the insured by demonstrating evidence of resilience practices. The commitment to resilience sees organisations activate response teams and programs long before requiring insurance payouts. With the right underwriter, we’ve seen this reduce premiums up to 15%/pa.
With a mix of culture, validated plans and programs, and the very latest technology, we believe you can reduce the impacts of rising premiums and better protect your people and business.
(API) Application Programming Interface allows different software applications to communicate with each other by enabling them to request and exchange data or functionality
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