Verisk’s Churney: Depending on your book of business, every peril is primary

Verisk no longer subscribes to the term secondary perils, as it implies that the analytics for those perils are less robust when the firm has been modelling them for more than three decades, Verisk’s president of extreme events solutions Bill Churney told The Insurer TV.

These perils account for a significant portion of losses incurred so far this year. For example, H1 losses in the US were dominated by claims from severe thunderstorms, which totalled around $40bn, according to Churney.

And they are not necessarily unprecedented losses or tail events anymore, he said.

“Roughly around 50 percent of global insured losses come from these ‘secondary perils’, if you add up flooding, severe thunderstorms and wildfires,” Churney explained.

“So, certainly it's an area where people need to be using tools and analytics to better understand and manage this risk. It's certainly, from that perspective, very much a primary risk.”

It’s been widely reported that annual catastrophe losses of $100bn+ are the new normal. Verisk’s latest research, detailed in its forthcoming 2023 Global Modelled Catastrophe Losses Report, shows staggeringly high cat loss estimates.

As previewed by The Insurer, the new figures represent an increase of around 7 percent on the 2022 estimate of $124bn, and that figure was a 16 percent jump over the $106bn annual average loss published in 2021.

Churney told The Insurer TV during an interview at Verisk’s offices in London that the spike is being driven by several factors, including inflation and an increase in the number and value of risks being built in the path of severe events.

“We keep building structures in harm's way. That's the number one driver. Climate change is certainly there as sort of another factor, but exposure growth certainly dwarfs that,” said Churney.

As a result of rising losses, Churney said Verisk has seen increased demand for models in all aspects of the insurance and reinsurance process. Whereas initially the models were used for portfolio management and underwriting, now he said they’re deeply embedded into workflows.

“People are running the models before they're binding a risk, understanding the impact a new risk might have on the overall portfolio,” said Churney.

This has resulted in a push for more granular data getting fed into models. Zip code or county-level exposure data, Churney said, has morphed into detailed data on buildings and individual structures.

Clients are also demanding that models get updated more frequently, to ensure they reflect climate change impacts that are already underway.

Modelling future risk

Another item on Verisk’s research agenda is advancing the models to solidify their usefulness over the next 10 years, making sure climate change projections are longer term and can peer decades into the future.

Highlighting the need for that kind of modelling is this year's volatile North Atlantic hurricane season, intensified by record-high sea surface temperatures combined with the El Niño climate pattern.

While the hope was the two forces would cancel each other out, Churney said uncertainty remains.

“We've already seen [Hurricane] Idalia really intensify quickly, I think you may see that with other storms that go forward. We've continued to provide a relatively consistent view of risk to clients, helping them understand risk when in a warm sea surface temperature period, such as we're in now, and also over a longer-term period,” he explained.

Verisk is also investing in a couple other key areas: management and liability risk and political risk, though Churney said these sectors are in earlier stages of development than property cat.

The firm is also rolling out a new financial model.

“[It] may seem a little bit esoteric, but when an underwriter is using the models to price high excess layers, they're trying to manage catastrophe risk with different types of terms and conditions. Our new financial model is a very powerful tool to help the users of the model output make better underwriting and portfolio management decisions,” added Churney.

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