Weather damage assessment tools can help insurers and policyholders save millions in claims
By Lori Widmer
On a recent Saturday afternoon, a hailstorm struck an area of North Carolina. It contained hail that was approximately three inches in diameter, and it hit one industrial area pretty hard. Because it was a weekend, no one was at work to see the damage to the roofs of several buildings; and without notification, no one will be aware of it for the next year or two.
That's a typical scenario that confronts people like Kevin Hassfurther. Hassfurther, who owns Hail Alert Technologies, makes it his business to know about every hailstorm in the United States because his customers count on him and his crew to deliver fast discovery and notification of hailstorms in their area. This allows customers to arrange for inspections that locate the damage and prevent it from becoming a major loss.
Unlike typical reactionary tools and services, weather mitigation tools have morphed into products that can pinpoint the potential for damage. For example, even a minor earthquake in Southern California warrants almost immediate inspection of buildings. But what about 10 years of heavy rain? Businesses can now measure not only the effects of known events but also the impact of unknown or unnoticed events, such as years of rain damage, sun damage, or soil erosion.
What's in the tool kit?
In one sense, weather assessment tools are not new. The National Oceanic and Atmospheric Administration (NOAA) has been using fire assessment methods since 1914. A forecaster was placed in the field with his equipment as firefighters were battling a blaze. The forecaster monitored the weather conditions and helped firefighters understand the impact those conditions were having on their ability to extinguish the blaze. Today's methods are far more precise; using algorithms based on drought indices, air moisture levels, and fuel levels, government agencies can predict the likelihood of wildfires with far more accuracy than back in 1914.
Today's weather assessment services are being applied to the business world. Companies like Straam LLC, a structural risk assessment and management firm based in Manhattan, are focusing their research, development, and implementation practices on how weather and natural events affect structures and business continuity issues. According to Straam's chief technology officer, Alan Jeary, being able to track a structure's aging process or event-related damage can help companies greatly reduce the cost of a building's structural insecurities.
He uses the example of the back-to-back earthquakes in Christchurch, New Zealand, where buildings that withstood the first earthquake were destroyed during the second one. "Those are extreme events," he says, "but from the insurance perspective, being able to track that degradation, put an index on it, and show how that's changing over time highlights when it's more cost effective to organize maintenance. It can also tell you after a disastrous event whether it's more economical to redevelop the structure or repair it."
Despite the availability of tools that help businesses assess their weather vulnerabilities, however, weather assessment products haven't been widely adopted by insurers or policyholders. The fundamental principles of such services are appealing, such as Straam's baseline structural integrity readings that insurers can then use to measure future fluctuations in the structure. Tom Winant, business development director for Straam, was able to show one major insurer that pre-measurement and assessment can save hundreds of millions of dollars for a fraction of the cost. "There's no question we're on the right track," he says. "It's that no one has been able to capture the information on these very large structures because it's hard to collect it."
Perhaps that's why more studies and supporting data don't exist. Because assessment products are relatively new—most having come onto the scene within the last two to three years—the insurance industry and the corporate sector are still trying to determine how assessment and early-warning tools fit into the business model and affect profit margins. Vendors are trying to help them understand the benefits, but vendors' case studies seem to represent the bulk of information about the effectiveness of weather damage assessment tools.
What companies can do is measure the loss. According to NOAA, property damage from hail in 2010 cost businesses and consumers $924.11 million. Total damage to crops and injuries to people amounted to a staggering $1.023 billion.
For assessments that measure damage to, say, automobiles, quantifying the average can be tough. "The average hail damage to an automobile, depending on the study, is somewhere between $3,000 to $5,000 per event," says Steve Smedberg, vice president of enterprise with Weather Central, a Madison, Wisconsin-based weather solutions and forecasting provider. "But you also have wild variations, such as if you total a BMW."
Vendor case studies seem to be the best measure of weather assessment tool effectiveness. Hassfurther's team has conducted studies for two different clients. One study was for a real estate investment trust whose management wanted to see how much more information Hail Alert's technology would report vs. the client's property managers reporting the damage themselves.
For one month, the client and Hail Alert maintained separate reports. At the end of the month, they compared notes. Even with top-notch diligence, the property managers reported just 13% of all hail events that occurred on company property. The reason so much was overlooked, Hassfurther says, is: "Sixty-five percent of all hail falls outside the Monday-through-Friday work week, so there's only a one-in-three chance you'll be at a property when hail hits."
Winant thinks insurers may be reluctant to embrace weather damage assessment technology because of cost concerns in today's intensely competitive market. "They could ask the insured to pay for the technology, but they're concerned about the relationship right now. If they're asking for more than someone else is asking for, the insured might take its business elsewhere."
Insurers are enthusiastic about the technology, but without a clear picture of costs and profit margins, few are lining up to use these services. Perhaps assessment firms can partner with insurers to educate business owners on the cost savings they'd see in both their maintenance and insurance premiums. Winant thinks insurer acceptance will come once the method is adopted as an industry standard.
Some weather assessment companies have found a way to win insurers' trust. Weather Central has created a partnership with Progressive Insurance in which automobile policyholders can opt to receive weather-related warnings of hail, high wind, and other events. Smedberg says Weather Central gives policyholders a 30-minute warning, allowing them to protect their vehicles from damage. "Early notice of damaging weather is not just instructive and informative, but in some cases it can allow the policyholder to do something proactively."
Smaller insurers are finding ways to use weather damage assessment tools as additional services they can offer their policyholders. "There are two main parts of the value proposition," says Smedberg. "One is the claims reduction opportunity. The other is more about the relationship between the insurer and its policyholders. This product is adding value to the experience for the client."
Insurers may be slow to embrace weather damage assessment tools as mitigation strategies, but as studies reveal more value for both the policy-holder and the insurer, assessment service providers are seeing increased interest from both businesses and the insurance industry. Until then, assessment companies have their work cut out for them. "We recognize there is work to be done making people aware of what we have to offer," says Smedberg.
Hassfurther agrees. "Maybe there will be five to ten times the number of claims, but if every claim is going to be one-fiftieth the cost, for the insurance industry it's a win."
Lori Widmer is a Philadelphia-based freelance writer who writes regularly on insurance and risk management topics.