Weather Data in the Insurance Industry

Kyle Davis - American Family Insurance

Abstract for Weekly Colloquium on Thursday, April 13, 2017 at 4 pm in Harshbarger 206 ~ Refreshments at 3:45 pm

Weather losses can put great stress on the insurance industry. In fact, from 1991-1994, nine insurance companies became insolvent due to natural disaster losses. The insurance industry has come to rely on specialists in the earth sciences – including the atmospheric and hydrologic fields – to better manage natural peril risk. One way this is done is through catastrophe modeling, the employing of complex models built upon physical principles, incorporating weather and geophysical data. These models provide a more complete view of natural disaster exposure than consulting the historical claims record as they simulate events over timescales of 10,000 years or greater, providing much more data than a few decades of historical experience. Through disaster simulations and estimates of property impacts, the models guide insurance companies to what their average annual losses could be and the likely magnitude of losses in extreme years. Weather data is also used in event response, or the employing of live weather and geophysical data to update the company on possible policy impacts due to ongoing natural disasters. Thus through the use of weather data and scientific expertise, insurance companies are better able to manage their risk and respond to natural perils.