Catastrophe Risk Modeling
Insurance companies use catastrophe risk modeling to examine insureds’ exposures to natural disaster events, develop loss estimates, and determine capacity and pricing. USI helps clients take a more thoughtful approach to insurance coverage by using the same modeling that insurance companies use for major cost-driving events, such as hurricanes, floods, wildfires, severe weather events and earthquakes, but we take a closer look to identify which locations may be driving most of the estimated loss.
We then gather specific information on those properties, including building design and resiliency measures, and run it through modeling again. This second look often generates a lower loss estimate, especially when clients have undertaken proactive risk mitigation, and can result in more favorable insurance pricing and terms and conditions.
As an example, USI had reviewed the property insurance program for a new client and determined the client had purchased $100 million in earthquake coverage. From a catastrophe risk analysis, we identified five locations that were driving 80% of the loss estimate. We ran the analysis again, inputting additional information related to the buildings’ earthquake design, and we were able to lower the loss estimate for these properties. The client was able to reduce the limit by $50 million, resulting in a $50,000 savings on premium.
Emergency Response Planning
High demand for contractors and supplies following a natural disaster can cause significant delays in rebuilding and recovery. In addition, supply chain disruptions have dramatically increased the cost of the raw materials needed for repairs.
The price of steel increased 168% from 2020 to 2021, and prices are once again on the rise. Lumber prices have begun to climb after falling back sharply from a record high in May of last year. They are about 22% lower than that peak, but still about three times their average pre-pandemic price.2
To avoid delays and ensure a faster recovery following a catastrophic event, businesses are encouraged to plan ahead. USI assists clients with taking these and other necessary steps to prepare for a natural disaster:
- Establish an agreeable claims service team — If possible, work with your insurer to establish a designated account adjuster who is familiar with your operations and can help streamline insurance processes following a disaster.
- Partner with an emergency response contractor prior to a loss — Following any catastrophic event, businesses can expect higher demand for contractors and materials, which can significantly delay recovery efforts and increase costs. Partnering with an emergency response contractor (ERC) prior to a loss will ensure you receive a priority response following an event when resources are scarce. This also allows the ERC to develop a recovery plan specific to your operations and exposures before a loss occurs.
- Develop an emergency response team and emergency action plan — Prevent and reduce damages and loss from natural disasters by planning ahead. Develop an emergency action plan specific to your operations and exposures, and designate an emergency response team to carry out emergency action tasks before, during and after a catastrophic event.
USI has also developed resources to assist with natural disaster preparation and recovery. Visit our Natural Disaster Planning page to learn more and access our preparedness and catastrophic claims reporting guidebooks.