"Secondary" is not the same as "unimportant"
Increasingly, hailstorms, torrential rain, pluvial floods and wildfires are playing a larger role in driving up claims. In recent years, more than 60% of all natural catastrophe related insurance claims have resulted from these so-called secondary perils. This trend is expected to continue given ongoing urbanisation and other socio-economic processes in exposed and well less modeled areas. In addition, climate change is exacerbating this problem, creating conditions that are conducive to some secondary perils.
Secondary perils can be independent small to mid-sized events, or secondary effects of a primary natural catastrophe peril. These often highly localized, sudden, small-scale and sometimes short-lived events are becoming the new norm. Using the term "secondary" to describe them could even be misleading and sometimes a reason for re/insurers to under-assess them and for the insureds to underinsure them. This existing protection gap is an opportunity for the insurance industry to both grow and help the global population to be better prepared to manage the hardships that disaster events can inflict.
This was the topic of our recent Engineering webinar, where my colleague Andreas Weigel offered our clients a deep dive into the challenges the re/insurance industry is facing to model this type of perils because of their intrinsic nature. While in the past we were able to look at only a few scenarios manually, probabilistic modelling and machine-learning techniques allow us now to automate this process for a considerable number of events and scenarios, to help better understand these catastrophe exposures. Innovative solutions like CatNet® can help raise awareness of these exposures and ultimately help the industry mitigate losses with higher precision.
Based on our global loss experience, Isaac Felekidis suggested approaches to deal with them going forward, both from a natural catastrophe modeling and risk management perspective. Just to mention one example, simple things like properly calculating the correct run-off height for flood or observing that there are adequately designed drainage facilities during the underwriting and risk management phases can significantly contribute to mitigate the impact of flood losses.
Secondary perils are of particular importance to Engineering. Many of our exposures are in less developed and often less modeled territories, and therefore at risk of not being considered in the underwriting process. Additionally, during the construction phase, the protection level of construction projects is often below what it will be once complete.
Our vision is to make the world more resilient. To do so, we as engineering underwriters, need to understand the underlying risks to address and price them correctly.