Reducing friction in reinsurance recoveries with satellite data
Rapid access to accurate hazard and damage data is essential to a smooth recovery process, believes ICEYE’s Rupert Bidwell.
The reinsurance recovery process is highly data intensive, with the accuracy and timeliness of information reported to reinsurers key to achieving a positive outcome. However, given the inherent complexity of major losses, the lack of critical data and the resulting high levels of uncertainty in initial loss estimates, it can be primed for dispute.
Starting the reinsurance recovery process as early as possible is a key factor in insurers’ efforts to shore up their balance sheet post loss. Decisions must be reached not only on what the recovery estimates will be but also on which reinsurance programs they may want to trigger based on how the loss develops to optimise capital effectively.
Such critical calls can only be made with confidence when loss data is available to support them. In the aftermath of a major catastrophe, however, such information is at a premium. Which is why increasingly, companies are turning to satellite data to get that on-the-ground, near real-time insight into the damage caused and the impact on their portfolios.
In the case of a flood or wildfire event, data can be available within hours on the total extent of the flood or fire zone, with additional information on water depth at the property level, or the number of buildings destroyed by fire. Regular and richer analysis is then provided as the event develops. Such information provides insurers with a much more reliable base from which they can produce more precise and timely estimated loss reports for reinsurers and consider how best to trigger reinsurance arrangements.
Satellite data can also help reduce late reporting of claims and therefore reduce late reinsurance recovery filings, with late-filed flood claims particularly unwelcome as they will inevitably be even more costly than more standard claims that are handled quickly. Insurers can proactively contact policyholders in flooded regions who may not be aware that their property has been impacted, for example if they have been evacuated, it is a second home, or they have suffered water ingress that initially goes unnoticed.
Early access to accurate data can play a central role in reducing the risk of dispute during the recovery process. One area that is particularly contentious relates to the specific hours clauses within reinsurance contracts. Satellite data provides a vital date and time stamp for every claim given the ability to monitor loss development in near real time, thereby removing or greatly reducing any uncertainty as to when a loss occurred.
That enhanced clarity provided in those early stages by satellite data also supports decisions on purchasing additional cover post loss. A major hurricane event at the start of a forecast highly active season can leave insurers in considerable financial jeopardy. Making the call based on accurate loss estimates produced from near real-time ground data means decisions to commit to further financial outlay are more considered and informed. Further, being able to access the market earlier potentially reduces the impact of possible rate hikes and coverage restrictions that may occur post loss.
The reinsurance recovery process will always be a demanding one, particularly following a major catastrophe event. However, by applying superior data insights based on satellite technology much earlier in the reporting process, much of the friction that can occur can be removed. Further, by being able to demonstrate a high level of loss control while other insurers are still struggling to report, this will inevitably heighten levels of reinsurer confidence in a cedant’s ability to manage losses of scale in the future.
Rupert Bidwell is vice president of insurance solutions at ICEYE