The ‘information gap’ could cost insurers billions, suggests new InsTech London report
Better use of location intelligence can provide the essential tools to assess fast-changing environmental risks that cost the industry around $60 billion in 2020, according to a new report from innovation network InsTech London, Location Intelligence 2021 - the Companies to Watch: Where, What and How Risky?
Swiss Re estimates that around 70 percent of the losses from natural catastrophes in 2020 came from the so-called “secondary perils” of tornadoes, flood, hail, and wildfires.
Until recently, the industry lacked credible tools to model short-term risks accurately even for common events such as hurricanes. The increasing frequency and severity of climate change risks, improvements in scientific knowledge, and cheap computing power has spawned a new era of boutique firms emerging to provide insurers with specialist tools to achieve a better understanding of the properties and the perils they face.
The report provides context around the rise of location intelligence that takes into account information from aerial imagery, on-the-ground imagery, third party data, and geocoding. Based on over 300 interviews, InsTech London reveals how insurers can use this data to underwrite and manage their exposure to property risks more effectively, as well as underwrite profitable underserved clients.
But without a focus onthe fundamentals, major “information gaps” can be misleading. The report identifies close to 60 new companies offering niche products to enhance location intelligence that have emerged in the last few years, ranging from start-up InsurTechs to more established players who are also developing innovative tech in this space.
Although location intelligence offers huge potential cost savings for the industry and opportunities for profit, the report also warns that even the smartest technology fails without a good understanding of what is being insured.
Matthew Grant, Partner of InsTech London, said: “I’m enthusiastic about the opportunities available for insurers to have access to better risk tools, for entrepreneurs to build new companies, and established corporations to find new customers for their insights. But new is not always better. Innovation is happening at companies that have been providing location intelligence for decades.”
Amongst several factors driving increased interest in the use of location intelligence, the report points out that “the biggest driver of change in 2021…is likely to be the increasing requirement for insurers to report on their ESG (Environmental, Societal and Governance goals).”
InsTech London predicts that ESG factors – already being used to determine asset allocation in the industry – are likely to become increasingly important to underwriting over the next few years. This is an area where greater use of location intelligence may well become indispensable.
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