Natural catastrophe

Floods are the most common natural disaster in the US, with all 50 states having experienced flooding since May 2018. Yet, less than 10% of US homeowners have flood insurance, representing a protection gap of USD 36 billion. One of the main barriers to closing the flood protection gap in the US is a fragmented regulatory framework. Before insurers can introduce new flood insurance products, local state regulators must approve flood modelling and risk scoring methodologies used, resulting in delays, regulatory risk, and increased costs for the insurers.

To ease the regulatory burden faced by Swiss Re’s insurance clients, we worked with actuarial consulting firm Milliman and its insurance advisory and rating organisation, Appleseed. Leveraging our proprietary flood models, we worked together to launch QuickFlood – a web-based, simplified flood insurance product for lower-risk flood zones. While Swiss Re provides reinsurance backing, Appleseed handles state by state regulatory filings. Once approved by state regulators, insurers can quickly implement QuickFlood by referring to Appleseed’s documentation in their rate filings. QuickFlood has been approved for use in 13 US states, with 11 more state filings pending approval in 2022.

In addition to reducing regulatory uncertainty and speeding up implementation, such an approach allows insurers to focus on educating everyone on the value chain — from mortgage lenders and realtors to insurance agents and property owners – on the importance of flood risk protection. This helps insurers grow their business and narrow the flood protection gap. To date, our overall flood solution supports up to 220 000 flood policies, helping to mitigate climate risk and strengthening societal resilience.

Jamaica is the largest and most populous island in the English-speaking Caribbean, with 2.93 million inhabitants. To protect the island against the impact of natural disasters, Jamaica has developed a Disaster Risk Financing (DRF) framework, supported by fiscal and public financial management reforms. The DRF strategy aims to reduce the fiscal burden associated with the growing impact of climate change, to increase social safety nets and to enhance infrastructure resilience.

In 2021, the government of Jamaica became the first government in the Caribbean region, and the first of any small island state, to independently sponsor a catastrophe bond. The bond would provide the island nation of Jamaica with accelerated economic relief of up to USD 185 million if Jamaica were to be impacted by a tropical cyclone that met certain minimum central pressure thresholds.

The transaction includes an innovative reporting feature, resulting in an expedited event calculation and payout, reducing to several weeks a process that could otherwise span several months. It is also the first tropical cyclone-triggered catastrophe bond to use a cumulative “cat-in-a-grid” structure, which measures the cumulative impact of an event over the island.

Swiss Re Capital Markets acted as structuring agent and bookrunner on the transaction, and it advised the World Bank on the issuance process of the Capital at Risk Notes under the World Bank’s Global Debt Issuance Facility. The International Bank for Reconstruction and Development, which holds the collateral, specialises in financing sustainable development projects in member countries. For the duration of its cover, the bond’s collateral will be invested in projects specifically designed to achieve positive social and environmental impacts. The Jamaica catastrophe bond therefore serves the dual role of providing protection and facilitating sustainable development.

Major natural disasters put claims departments under enormous pressure to deploy loss adjusters and handle the sudden large number of claims efficiently and accurately. Swiss Re’s Rapid Damage Assessment (RDA) enables claims managers to take faster and more accurate decisions in events such as tropical cyclones and floods. RDA uses a combination of event data, natural catastrophe models, data enrichment and AI algorithms on high resolution aerial and synthetic aperture radar (SAR) satellite imagery to derive property-level damage insights, ultimately improving the loss adjustment process.

We continuously enrich our existing datasets through partnerships. One such partnership made in 2021 is with ICEYE, whose radar-based technology satellites can peer through cloud cover, volcanic ash and hurricanes to measure how floods and other natural catastrophes are impacting specific regions as they occur.

In 2021, we applied our RDA capabilities using satellite images of large-scale flooding in eastern Australia to provide clients with a damage assessment of the emergency. This work combined a satellite data analysis of the depth of the flood water with an in-depth portfolio analysis of the insured risks in the affected area.

Without needing to access the flooded region, our experts used the RDA enriched with ICEYE data to calculate the impact of the flooding across clients’ portfolios within days. Previously, the process would have taken weeks to months, with experts needing to first gain access to the region before conducting lengthy assessment processes. This enables faster claims handling and payouts, whereby funds can be deployed to beneficiaries in the affected areas when they need them most.

Floods are heavily impacted by climate change, and with flood losses having increased in the last decade, the protection gap has also widened. By establishing new partnerships, Swiss Re is enabling more efficient and transparent loss assessment, contributing to reconstruction efforts and strengthening societal resilience.