Sources: The Balance and National Hurricane Center.
In 2017, Hurricane Harvey hit Texas and Louisiana, causing a record economic loss. The Insurance Council of Texas (ICT) and ISO’s Property Claims Services (PCS) placed the insured losses from Hurricane Harvey in Texas at $19 billion with another half a billion across Alabama, Louisiana, Mississippi, Tennessee and North Carolina, including an estimated $11 billion in flood losses insured by the NFIP.
“Hurricane Harvey made us realize that the market was missing a whole peril not caught in our catastrophe loss index,” Allen says. “Most commercial U.S. hurricane models only include wind and storm surge, meaning that unless you added this new precipitation peril in your internal modeling, you would not have had it covered. And even for carriers that had this extra peril modeled, the extreme precipitation from Harvey was probably not accounted for.”
Argo was one of the latter ones, she says. Since then, Waisman’s team has collaborated with insurtech vendor KatRisk to calibrate Argo’s U.S. flood model and adopt a bespoke version into the Argo View of Risk.
“We learn from every new event,” Waisman says. “We use these opportunities to do our own research and update our internal models, whilst keeping the standard commercial model view as well. For the case of Harvey, we were adding precipitation to the commercial models, but that level of loss was very remote in our model.”
How does climate change affect the model?
For ArgoGlobal’s underwriting team, the current focus is on short-term climate effects.
“We are doing our best to include elements of climate change in our modeling, aside from what is already included in the current observations” Waisman says. “For example, global ocean temperatures are on the rise year after year, sea level is rising, hurricanes are moving slower, peaking further poleward and carrying more moisture.
“At the same time, we are looking at the long-term impacts of climate change, but these are not included in our pricing at this time.”
However, as the industry sees more signs of climate change, comprehensive flood modeling is becoming an indispensable tool for underwriters.
Learn more about Argo’s R&D program.