New tools to estimate individual property flooding risk may aid controversial risk-based insurance
Thursday, 18 June 2020
New products are being offered that could aid insurers in their controversial moves to more individual property risk pricing.
Property information company CoreLogic has a new set of products called FloodMap and FloodScore that it says provides more comprehensive nationwide information on the risk of flooding of individual properties throughout the country. The computer model covers 99.6 per cent of the country.
Risk-based pricing reflects the individual risks of a property to natural hazards like floods and earthquakes and moves away from the traditional insurance pooling approach where low-risk properties subsidise high risk ones.
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Almost every property in New Zealand could be scored for risk of flooding with the new set of tools, said CoreLogic client executive Richard Deakin.
CoreLogic partnered with global flood modelling specialist Ambiental, headquartered in the United Kingdom, to produce the new tools for sale here.
CoreLogic collects property data from many sources and produces products and services around that information for Government, banks, telcos, utilities and insurers and many other sectors.
Deakin said while New Zealand had been shaken by some large earthquakes in the past ten years, it had a large risk of flooding where major floods happened every eight to nine months.The view of Civil Defence was that flooding was the number one hazard in New Zealand.
The debate over risk-based pricing for property insurance had been focussed in the past 18 months on earthquake risks but the next step was flooding risk, he said.
The flood model was a complex computer-based model that built up a view of what New Zealand looked like, what the terrain looked like, the hills, the slopes, the valleys, the rivers. Into that was fed a lot of information about the type of soil, how impervious it was for instance, and where property locations were.
The country was divided into grids - five by five metre grids in the urban areas of Auckland, Wellington and Christchurch and eight-by eight metre grids in rural areas.
'The model simulates what will happen if you drop water, if you drop rain, in certain parts of the country and where the flooding is likely to occur.'
'The flood maps will allow businesses to look at all of their assets or all of their customers' assets throughout the whole of the country and get a consistent nationwide view of the likely risk,' Deakin said.
For those who did not want to use the full maps, a FloodScore tool could calculate what was the risk of flooding at a location on a score of 0 to 100.
'It is the first time that there has been a product that does it at such a high resolution that you can get an accurate property level estimate.'
'It's a much more granular view of flood risk.'
'It is a new model in that it's not based on anyone else's flood data, but we do validate it against existing data.'
They did that by comparing with existing council maps but mainly by comparing with photographic evidence of flooding.
Besides insurers, other sectors like banking, telcos, utilities and organisations with assets located around the country also wanted to understand their risk of flooding.
The move to risk-based pricing was always going to happen at some point especially in a risky environment like New Zealand, Deakin said. There were certain areas of the country where potentially insurance or mortgage finance could be harder to get in the future.
The information was aimed at commercial organisations and not individuals.
CoreLogic had been talking with banks, insurers, local and central government and commercial interests about the flooding tools.
'Bbut from a commercial perspective I probably can't say much more than that apart from we are engaging with interested parties.'
Insurance council chief executive Tim Grafton declined to comment saying he was not familiar with the detail of the new products or use by industry.
Chief executive of the Insurance Brokers Association Melanie Gorham said the use of third party modelling was becoming more relied on to try to get to grips with pricing for risks.
Brokers would not buy this kind of information. The brokers' role was to challenge and understand why the premiums being charged where what they were.
Years ago when there was less information risks might be priced higher because an underwriter was concerned about 'what they don't know'.
'Arguably, the more that we know about risk the more accurately we can price it,' Gorham said.
Last August two reports were released, one by Niwa, revealing that about 700,000 Kiwis in 411,516 buildings worth $135 billion are exposed to river flooding from extreme weather events. With climate change more extreme rainfall events were expected. Also exposed were 19,098 kilometres of roads, 1574km of railways and 20 airports.