Insurance Article, The Insurance Times 2021, The Insurance Times August 2021

Tropical Cyclone: A challenge to Insurance Industry– GIS Technology a solution

Tropical Cyclones/Hurricanesare location specific.In an article in June 2021 issue of Insurance Times, a new web application TROPCYC for Risk Assessment of Tropical Cyclonefor Indiaspecificwas introduced. Looking at the rapid climate change forecasted by the scientists, accepted generally by International Community (Paris agreement), General Insurance Industry world over must be prepared to meet the challenges of higher frequency & intensities of cyclones than experienced till now. To meet the challenges, the General Insurance Industry has to first accept it and then find ways to protect their customers with optimum premium based on their risk exposure and also share its huge claims experience in risk reduction, risk control, loss prevention and disaster management. Insurance Industryhas to useits claims experience over the years,absorb the knowledge & advances in the field of meteorology, climate change models, advances made in structural engineering to build structures suitable to face the fury of high Wind speeds/Flash floods/Storm Surge hazards of the Tropical Cyclones and the new technologies such as Geographical Information Systems (GIS) to deliver their customers Insurance Products & Services on a real time basis.

The Insurers are covering the Tropical Cyclone catastrophes since the birth of the Insurance in UK. The Underwriter in the last century or earlier covered the risk on information given on a slip from the Insurance Broker. There was no knowledge on potential damages/claims to be paid in the absence location knowledge of the Tropical CycloneHazard.We are now in 21st century,in aglobal economy connected with fast telecommunication, 5G Internet and vast & exploding knowledge in all fields. We are better equipped to face the challengestoday provided we use the knowledge available. Let us identify the challenges:

Underwriting

In All India Fire Tariff all the weather perils viz. Cyclones, Flood etc. were clubbed together and a single rate was uniformly charged all over India. The tariff rates by nature are generally conservative and ignored risk based premium structure. This mind set appears to be continuing even though there are no tariffs in the Indian market. Consequently only those customers who are exposed to the risk took the cover while the majority did not cover the hazard, leading to selection against Insurers. The time has come to develop sound underwriting policy for covering Tropical CyclonesHazard so that majority of customers buy the cover. Thus following the first principal of Insurance i.e. few unfortunates are paid from the premium collected from the majority. This is one major reason why the insurance penetration has remained low in India.

Maximum Probable Loss (MPL) Estimate (which the Insurers use as a principal tool for Underwriting& Reinsurance) is the answer. The Insurers have to look at their claims paid for Tropical Cyclones in last 5 or 6 six cyclones. The claim study would reveal the myth of 100% or total loss in a Tropical Cyclone. Of course in some cases such as mobile towers etc., loss can be total but not in the well built structures, in particular in bread & butter business of Commercial and Industrial assets. Incidentally internationally recognized Saffir-Simpson scale does not include Severe Cyclonic Storms (Wind Speeds below 119 kilometers per hour) as causing significant damages. Also Insurers in India did not have significant claims reported in recent ‘Nisarga & Nivar’ Severe Cyclonic Storms.

The need of the hour is to analyze the claims paid in the recent six or seven Tropical Cyclones by the Insurance companiesto arrive at realistic MPL Estimates. MPL Estimate would need to be co-related with Red, Yellow & Blue Zones by using Latitude/Longitude of the location of the claim for different occupancies. The realistic MPL Estimates together with predicted number of cyclones & their intensities would equip Insurers to form their underwriting policy. It is however recognized that the Underwriting is not a purely technical issue but a tech-know-commercial one and Insurers have large experience & expertise to frame their underwriting policy.

Reinsurance

Reinsurance is the unique feature of Insurance business. No other business has it. By Reinsurance the risk is shared globally. Insurers/Reinsurers retain the risk based on their capital & risk appetite and share their premiums and claims through the reinsurance treaties for smooth business operations. But the important factor in Reinsurance is to MPL estimate to decide the retention of individual risk and transferring the balance to Reinsurers all over the world. But in case of catastrophic perils such as Tropical Cyclone not only one client is affected but a large number of clients suffer damages since the diameter of the cyclone can be as high as 500 kilometers plus. Here the accumulation of MPLs is critical. Technology of GIS comes to help to arrive at accumulated MPLs in one single cyclone.

Based on the MPL and Accumulation of MPLs Estimates Insurance companies can design their Reinsurance Policies to protect their balance sheets with no surprises and to safe guard interests of their all stakeholders. GIS software application such as TROPCYC can play very important &effective role in delivering to the customers, updating data/analysis on a real time basis at a click of the mouse in today’s fast-moving market.

Loss Prevention and Disaster Management

There is a huge data source in the form of claims and Engineers Inspections which can be utilized to recommend Loss Prevention measures and to prepare disaster management plans. This information may be shared with customers of the Insurance Companies first and also with the professionals viz. Architects/Structural Engineers/ Industry bodies/Disaster Management Institutes/NGOs etc and also general public. It would be a great service to the nation. Regulator can play a vital role by publishing informative reports and circulating them to all concerned and thereafter interacting with them proactively. This would certainly increase reputation of the Insurance Industry.

Geographical Information System (GIS)

Reference was made to GIS as a tool which is must for Insurance Industry for Risk Assessment, Marketing and much more.

Under remote sensing technologies with the help of satellites, it has become possible for us to monitor our planet and gain critical information pertaining to the topography and climate data. Over the years, this data has become prevalent in determining as well as predicting natural calamities for property protection and development.

GIS is now being extensively used to predict natural disasters. Initially used to accumulate land data, GIS technology is now being increasingly integrated into risk assessment software. GIS uses its vast database and mathematical algorithms to analyze spatial locations and portrays the output in visual data.

This data is spread over maps so patterns and relationships can be assessed. With the help of this data, different zones can be created over a map depending on the potential risk they possess from calamities like floods, landslides, and cyclones. These zones can be strengthened against the threats they may encounter by implementing the necessary pre-disaster strategies.GIS is used for risk assessment because of its near-accurate capability of predicting natural phenomenon’s like storms, cyclones, and floods.

  • Identify risk potential for assets in cyclone-prone areas

Asset owners in risk-prone areas insure their properties against damage caused due to natural calamities. Asset owners can take informed decision on location of the property, designing the structure loss prevention and business continuity. Insurance companies face a risk when it comes to charging anoptimum premium amount to their customers in cyclone-prone areas. This is primarily due to the lack of a scientifically proven data source.

Using GIS-based solutions, insurance agencies can identify the probability and intensity of cyclones to determine insurance coverage and charge asset owners the appropriate premiums. These logical, data-driven premium values, in turn, encourage more asset owners to opt for risk insurance for tropical cyclones. This is a win-win situation for both the insurer and the insured.

  • Use GIS data in real-time to track tropical cyclones and their impact

GIS is not only useful pre-disaster but even after that. Insurance companies can use GIS to trace a cyclone in real-time to understand its path.

By overlapping information of the insured with the damage caused by the cyclone over a map, the insurer can get a clear idea of the number of claims expected. This will help the company to be well-prepared in the disbursement process and provide relief to the insured.

The insured will appreciate this action taken by the insurer of swiftly disbursing the funds, helping them rebuild their assets, and getting the business back on track as soon as possible.

  • Emergency planning:

Natural disaster impacts most part of the globes and the destructions caused by them are inevitable, and to respond to these challenges caused by the unexpected disaster is quite difficult. GIS based location-based system can be used exponentially to cope up with such challenges that occurred through natural disasters.

  • Identification of probable affected area:

Natural disasters are the sudden events and the occurrence of such events can be predicted to certain extent, based on the hazards that pose threat to the area. As the natural disaster are the rare events, but the records of the past events can give valuable information.

  • Migration planning and measurements:

In case of the events of natural disaster the mitigation planning plays an important role for the safety and security of the lives of the people in the hazardous zone. The risk of the hazardous zone is not same all over the areas, so in such case the GIS can be used to demarcate the zones of the high medium and low risk zones within the area based on which the mitigation measurements can be planned. Depending upon the severity of the natural disaster of the area can be determined using the GIS Tools.

  • Post disaster management

GIS can be used for planning and managing the post disaster management such as utility management, finding the prone areas, calculating the economic losses in terms of infrastructure and in case of irrigation.

  • Fleet Management and planning rescue operations

GIS can be used for planning the fleet in case of emergency, in case of planning the shortest route, or rerouting the fleet as per the cyclonic condition, planning the service area in case of emergency. GIS can be widely used for rescue operation in case of any critical damages.

Optimal use of location intelligence and analytics to improve the services provided to citizens and customers

For forecasting and analyzing the past data and for trends analysis or for the prediction of the events the different statistical methods are used based on the distribution and the relationship of the data.

Data collection of the natural events is quite difficult as most of the past records are in tabular data. The next challenge is conversion of the data in GIS platform and the segregation of data based on the events and the intensity of the impacts it has.

Unique value proposition by TROPCYS for emergency response

TROPCYC application has been developed for the prediction or the forecast of the cyclone events that are probable to occur. The TROPCYCsystem considers the past cyclonic event for the last 129 years. The data consider the wind intensity data which had occurred in the past 129 years, this data is extracted, segregated and processed for the number of cyclones that had occurred within the area, and using the statistical method are used for prediction analysis.

In each report, wind speeds in km/hr, Flash Floods & Storm Surge height at the given Geographical location has mentioned, this is highlighted in classified zones with different scale. Hazard zones viz. Red Zone, Orange Zone, Yellow Zone, Blue Zone and Green Zone are marked on analyzing historical catastrophic Cyclonic events from 1891 to till date.

On GIS platform, Storm Surge zones are marked on the coast of India as defined by INCOIS and sea water penetration on land is marked by analyzing published reports from IMD. All the reports are in descriptive formats; now after analyzing we have converted reports in tabular format for clear understanding of the users.

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