From data to decisions: CUO on AI’s impact on climate risk modeling
From data to decisions: CUO on AI’s impact on climate risk modeling | Insurance Business America
Technology
From data to decisions: CUO on AI’s impact on climate risk modeling
Underwriting expert notes the potential of AI in underwriting
Technology
By
Jonalyn Cueto
Artificial intelligence (AI) is poised to revolutionize climate risk underwriting and modeling, according to Bob Quane (pictured), chief underwriting officer at Beazley. In an interview with AM Best TV at RIMS Riskworld 2024 in San Diego, Quane discussed how AI could transform the insurance industry’s approach to climate-related risks.
Quane emphasized that as the world grapples with increasing climate change, risks such as wildfires and floods, there is a critical need for insurers to adapt their catastrophe (cat) models to address these challenges. He noted a shift towards forward-looking cat models that prioritize recent trends over historical data. This shift aims to support clients by providing them with specialized advice to enhance their resilience to climate risks.
“We have to focus on the most recent trends, but still we’re adjusting our cat models for climate risk, particularly for US wind, so that it’s forward-looking. We’re doing this to support our clients,” said Quane. “This is to give them our specialty advice and how we can address climate change that faces this challenge.”
In addition, Quane highlighted a growing awareness among companies regarding the need for insurance protection against climate risks. Beazley’s risk and resilience paper revealed that 30% of their clients feel unprepared to deal with climate-related threats, prompting a surge in demand for insurance coverage. This demand encompasses not only natural catastrophe exposure but also litigation risks associated with greenwashing.
Mounting awareness in the industry
Regarding reinsurers, Quane noted reinsurers have adjusted pricing, reduced terms, and increased attachment points in response to heightened risk perception. He also said they are investing heavily in research and analytics to better understand climate risks and their impact on portfolios, thereby enhancing resilience across the insurance value chain.
“Reinsurance, you know, just like us, we’ve embedded climate risk into our underwriting and into our pricing, and they’re doing the same thing,” he said. “They’re also investing a lot in research and analytics and they’re doing that to understand the risk more deeply and then understand the impact it has on their portfolio.”
Pivotal role of AI
Quane agreed that technology, particularly AI, is playing a pivotal role in addressing climate risks. He outlined Beazley’s initiatives to leverage AI for operational efficiencies, underwriting, claims processing, and scenario testing. He said AI’s ability to summarize vast amounts of client data, identify focus areas, and expedite catastrophe modeling is expected to significantly enhance insurers’ capabilities to respond to climate-related changes swiftly and effectively.
He also noted that machine learning algorithms are being deployed to identify climate signals and validate models, thereby facilitating more accurate risk assessment and event response. “We’re very excited about it. We think it’ll be all kinds of future needs that are going to be created that AI will be suitable to address,” he said.
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