Knowing what we don’t knowBy Sanford Brown | March 4, 2017
“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. These are things we don’t know we don’t know.” — Donald Rumsfeld
Linguistics aside, there’s validity in that statement. Mr. Rumsfeld went on to say, "[I]t is the latter category that tends to be the difficult one.” The unknown unknowns are the significant challenge for commercial property underwriters as well.
Here’s just one case in point: An insurer evaluates a commercial property for coverage, and the facts the underwriter knows are as follows: It’s a 20-unit motel, two stories, masonry construction, located in Texas; and the insurer previously covered the property from 2008 to 2010 with one claim on file.
It sounds pretty straightforward, but there’s often inaccurate or missing information if not outright “unknowns.” One such unknown is the fact that the insurer who covered the property from 2010 to the present time had a fire claim. Also, in the intervening years, there were two more fires—one in a dumpster in the rear of the building and another in the laundry room caused by an overheated clothes dryer—but neither incident resulted in a claim. In fact, there were no claims until the motel had a major fire within months. Those additional facts are the unknown unknowns that could affect the underwriter’s decision to write the risk or not or price the policy accurately.
Other likely unknowns for the property include:
- the number of other fire or gas incidents at the property, whether or not a claim was filed
- the distance to the nearest fire hydrant (with an aerial image to display its accessibility)
- the property’s history of hail and other nonmodeled weather events
Indeed, the unknown unknowns are the difficult ones. Our web seminar―Going beyond COPE when Assessing Commercial Property Risks and Perils―explored the uncertainties of risk assessment and the importance of understanding the history and risk of nonmodeled weather events, such as exposure to hail, lightning, wildfire, and wind. It also covered undisclosed and unknown risks, the challenge to developing accurate incident and claim history at the point of underwriting, and how we can help you get the insight you need to know the unknown.
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