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What happens after catastrophes? Protection in a time of loss

U.S. property/casualty insurers paid an estimated $176 billion in natural catastrophe claims in 2020 and 2021, and while losses have been increasing over the past 4 years, examining a longer time period reveals considerable variability in year-over-year losses. Most of these claims flow from acute weather and climate-related perils, including wildfire; hail and severe thunderstorms; hurricanes and associated storm surge; and other forms of flooding. Tornadoes, derechos, and earthquakes add further to property insurers’ ever-growing appetite for risk data.

As natural catastrophes become more frequent, severe, and widespread, granular property data and reliable RCEs can help keep policyholders appropriately protected and supported in a time of loss.

Despite every mitigation measure, a natural hazard may still cause damage or destruction, and insurers must have current, actionable data up front to help guide underwriting and pricing and keep all policyholders appropriately protected. This information includes a firm grasp of component-based replacement costs for materials and labor spanning personal and commercial properties.

Fire in the forecast

Managing wildfire risk has grown rapidly as a priority for insurers operating in states exposed to this peril.

The United Nations has warned that a warming planet is likely to experience more droughts, more variable rainfall, higher land temperatures, and more storms that produce lightning—all triggers for more severe wildfires.

Verisk data reveals an upward trend in insured losses due to wildfire over the past two decades as building encroaches further on high-risk areas such as the wildland urban interface (WUI). Furthermore, Verisk analysis shows that new construction in Riverside County, ranked fourth by number of housing units at high to extreme wildfire risk in California, grew 242% in the past five years

This outlook interacts with some important trends affecting RCEs:

  • Lumber, supporting wood-frame structures, has soared to become the largest materials cost. Meanwhile, lumber-derived goods such as interior trim also have seen significant jumps.
  • In the event of a wildfire, demand for labor becomes highly localized, and workers may need to travel longer distances at greater cost.
  • A fire’s effects can spread to commercial properties, for example California’s wine country. In recent fires, dozens of wineries were reported damaged or destroyed.

A spreading threat of hail

Like wildfire, hail is becoming more widespread extending from the “hail alley” of the Midwest to more densely developed Eastern states. Severe thunderstorms, which can be accompanied by destructive hail, are among the most common and damaging natural disasters in the United States. Increasing hail activity has implications for RCEs:

  • While roofs may be able to withstand a significant amount of damage during a hail event, their condition may then deteriorate over time.
  • Roof replacement costs can change significantly based on local material and labor prices.
  • Volatile oil prices could affect the cost of petroleum-derived asphalt shingles, driving prices higher.

A robust data ecosystem can help deliver a comprehensive view of property risk, from address-level exposure to granular, up-to-date RCEs as insurers manage the cost of increasing claims.

Itv Alignment

As a leader in replacement cost estimation for more than 20 years, Verisk recommends five strategies to help avoid outdated valuations that could leave insurers and their customers vulnerable in the event of a total loss.

Download the report to learn more

Trish Hopkinson

Trish Hopkinson is Head of 360Value, for Verisk. You can reach Trish at thopkinson@verisk.com.

Joel Teemant

Joel Teemant is product director, 360Value commercial lines, for Verisk. He can be reached at jteemant@verisk.com.


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