Why ‘Extreme Weather’ Is Creating Opportunities In Weather Insurance

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By Luke Smith.

It’s hard to watch the news nowadays without coming to the conclusion that weather is getting more extreme. Storms Ciara and Dennis in the UK have followed on the heels of a record wildfire season in Australia while 2018 saw a record fire season in California.

Sadly, that impression isn’t mistaken. Extreme weather events have become more frequent over the past few decades as shown in the chart below taken from the UK Met Office.

Unsurprisingly, the increased frequency of extreme weather events has led to increased damage from weather-related disasters (charts from The Economist) and driven increased costs for insurers.

The Opportunity?

This increased frequency of adverse weather events and the increased damage they cause is a challenge for insurers, who need to come to terms with a world where their historic risk models are potentially inaccurate. To overcome that challenge, they will have to leverage new technologies such as satellite imagery and connected sensors to collect more granular and real-time data on weather events as they happen, building new, more relevant data sets and using those to more accurately price risk.

There’s huge potential for companies that can leverage new data sources to improve insurance for adverse weather events. Parametric insurance can pay out automatically based on a specific outcome such as volume of rainfall or a fire within an area while software providers can help insurers to better understand & price risk or manage the claims process. There is also scope to sell in to financial markets that trade in commodities impacted by adverse weather who will pay for better forecasts or data.

I’m keen to find companies in the space so if you are using better data to improve weather insurance or know someone who is, please get in touch with us here.