Flooding is the world’s most devastating natural hazard causing severe social, economic and practical impacts. The number and severity of events are rising rapidly, yet underinsurance remains a significant challenge. Without the right tools flood will become even more of a challenge to underwrite. Most flood losses are preventable by using a combination of early warning, a flood plan and resilience measures to give people time to prepare and protect their assets.
However, a problem with existing warning systems is their inability to predict most floods including ordinary watercourses and surface water flooding, the biggest flood risk of all. After two decades of academic research, Previsico has developed a new flood forecasting technology which addresses this problem. This provides actionable property level warnings up to two days in advance and crucially includes surface, fluvial and coastal flooding. This creates an opportunity to minimise flood impacts across the entire industry and transform underwriting. As part of Previsico’s participation in the Lloyd’s Lab, a framework was developed to support underwriters in improving their loss ratios by taking consideration of the ‘preventability’ of flood losses when insureds are provided with Previsico’s actionable flood warnings. This report outlines the performance of Previsico’s forecasts showing a 96% coverage of observed flooding.
Three use cases were created using Lloyd’s loss data that showed the potential savings should the customer have received an alert. These use cases cover household, fine art and specie and commercial property. For each use case there were significant savings to be made depending on the type of asset (moveable or unmoveable) and if they combined an alert with a flood action plan and/or resilience measures with savings typically over 50%. Previsico can help the Lloyd’s market to mitigate against flood risk and reduce losses as well as claims costs. Combining flood warnings with existing flood risk mitigation strategies strengthens a business’s risk profile.
This will allow the market to underwrite flood risk more confidently and help start to close the coverage gap. Previsco’s underwriting framework outlines four options that mitigate flood risk to protect the underwriter: 1. Policy Conditions, 2. No Claims Bonuses, 3. Reduced premiums whilst increasing deductible, reducing cap or increasing co-insurance and 4. Providing the forecasts as a value added service