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Mitigating the insurance risks of climate change through geospatial data visualisation

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Insurance risks due to climate change

Richard Toomey, Senior Manager, Commercial Insurance at LexisNexis Risk Solutions UK and Ireland

 

In the lead up to the 26th United Nations Climate Change Conference of the Parties (COP26)[i] November 2021, A United in Science report[ii]  provided a stark warning of the impact and acceleration of climate change. The UK Environment Agency also warned of more extreme weather leading to increased flooding and drought[iii]. While some progress was made at the conference, understanding the changing risks created by extreme weather to price property insurance more effectively, and more importantly, to help mitigate the physical risks posed by climate change, has become imperative.

Mapped geospatial data intelligence including live data on flood warnings and river flows, viewed alongside data held by insurance providers on the properties in their portfolio, can be a key ally in helping to protect customers and reduce claims losses created by extreme weather events.

With the air temperature rising and heavy rain becoming more and more frequent due to climate change insurance providers are looking to identify properties that are more at risk than others. For example, properties with basements carry more of a substantial risk of surface water claims than others and especially in London where space is tight and water runoff is low. In the autumn of 2021, the industry saw a number of high value claims due to basement flooding. There are some really large high net worth (HNW) households with big basements which carry a significant insurance risk.  The problem is that in many cases insurance providers don’t know if they have a property ‘on cover’ that actually has a basement.

Richard Toomey, Senior Manager, Commercial Insurance at LexisNexis Risk Solutions UK and Ireland

Richard Toomey

The huge and growing volume of data now available to the insurance market to assess property risk to the level the industry needs, could easily overwhelm and prove a barrier to the swift decisions needed in weather-related surge events. However, the evolution of desktop based geospatial data visualisation tools such as LexisNexis® Map View means insurance providers can make quick, informed decisions based on a picture or map of risk, looking at a specific geographical region, a postcode, an address or a single property outline.

They can look at environmental risks including flood, fire and subsidence and live flood data updated every 15 minutes direct from the Environment Agency, as well as highly predictive flood risk data from respected flood modelling organisations. Insurance providers can also bring in data on the characteristics of a property to understand more about its construction, including the type of roof it has, how many floors there are, the square footage, as well as further data on the location and the individuals behind a business to gain a more holistic understanding of risk for pricing.

Mapping of historical flood data brings a further dimension to the understanding of risk, revealing the maximum extent of all individually recorded flood outlines from rivers, the sea and groundwater springs in England and Wales. This takes into account the presence of defences, structures, and other infrastructure where they existed at the time of flooding and includes floods where overtopping, such as at seawalls, river breaches or blockages may have occurred.

But the real step-change for the market has been recent ability to view live flood and other environmental data in tandem with customer and policy data held within an insurance providers’ own databases.

Crucially, this means insurance providers can pinpoint down to individual properties, the policyholders most at risk as weather events unfold, should a river burst its banks, or a flood barrier fail and those properties that may actually be vacant at the time of the event.

Through data visualisation tools, insurance providers can gauge where flood water may go so that policyholders can be warned to take measures to protect themselves, their possessions and to move any vehicles to higher ground. They can even see where roads may have been closed due to fallen trees. All this intelligence helps with planning on the ground resources, working with local authorities and claims adjusters. Then, in the immediate aftermath, rather than wait for a deluge of claims, insurance providers are in a position to reach out to customers known to be in areas affected to support them through the claims process.

The inherent flexibility of today’s geospatial data visualisation tools for the insurance market means risk can be assessed as needed or as constant monitor for a whole commercial property portfolio. Fundamentally these tools are designed to streamline the assessment of property risk.

In the future, commercial and residential property claims data gathered from the whole of the market may allow insurance providers to look at a whole portfolio alongside past claims, but for now they can bring in their own claims data to build a more granular picture of risk, to price more accurately and understand how they could help mitigate future claims and potential losses caused by weather events.

A picture can say a thousand words and data visualisation tools can certainly make highly complex risk data easy to understand and act upon. Being able to instantly visualise an environmental risk to policyholders – day or night – using highly granular data on past and present flood events puts insurance providers in a more powerful position to reduce the misery and costs caused by extreme weather.

[i] https://ukcop26. org/wp-content/uploads/2021/07/COP26-Explained. pdf

[ii] https://public. wmo. int/en/media/press-release/climate-change-and-impacts-accelerate

[iii] https://www. gov. uk/government/news/adapt-or-die-says-environment-agency – The Environment Agency’s third adaptation report October 2021

 

Banking

Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study

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Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute

 

Corporate responsibility is more important than ever. Today, many investors expect more than just profit from their financial decisions; they want easy access to financial products and to be able to express personal values through their investments. Crucial to meeting these new investor expectations is trust in the financial services providers that enable investors to build wealth and realise personal goals. Trust is the bedrock of client relationships and investor confidence.

The 2022 CFA Institute Investor Trust Study – the fifth in a biennial series – found that trust levels in financial services among retail and institutional investors have reached an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 markets globally, the report is a barometer of sentiment and an encouraging indicator of the trust gains in financial services.

Wealth managers may want to know how this trust can be cultivated, and how they can enhance it within their own organisations. I outline three key trends that will shape the future of client trust.

 

THE RISE OF ESG

ESG metrics have risen to prominence in recent years, as investors increasingly look at environmental, social and governance factors when assessing risks and opportunities. These metrics have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express personal values or invest in companies that have a positive impact on society or the environment.

The Trust Study shows us that ESG is stimulating confidence more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their trust in financial services. 100% of this group expressed an interest in ESG investing strategies, as did 77% of retail investors.

There are also different priorities within ESG strategies, and our study found a clear divide between which issues were top of mind for retail investors compared to institutional investors. Retail investors were more focused on investments that tackled climate change and clean energy use, while institutional investors placed a greater focus on data protection and privacy, and sustainable supply chain management.

What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.

TECHNOLOGY MULTIPLIES TRUST

Technology has the power to democratise finance. In financial services, technological developments have lowered costs and increased access to markets, thereby levelling the playing field. Allowing easy monitoring of investments, digital platforms and apps are empowering more people than ever to engage in investing. For wealth managers, these digital advancements mean an opportunity for improved connection and communication with investors, a strategy that also enhances trust.

The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases trust in their financial advisers and asset managers, respectively. Technology is also leading to enhanced transparency, with the majority of retail and institutional investors believing that their adviser or investment firms are very transparent.

It’s worth acknowledging here that a taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help navigate their investment strategy over a human advisor. Of the over-65s surveyed, however, just 30% expressed the same choice.

 

THE PULL OF PERSONALISATION

How does an investor’s personal connection to their investments manifest? There are two primary ways. The first is to have an adviser who understands you personally, the second is to have investments that achieve your personal objectives and resonate with what you value.

Among retail investors surveyed for the study, 78% expressed a desire for personalised products or services to help them meet their investing needs. Of these, 68% said they’d pay higher fees for this service.

So, what does personalisation actually look like? The study identifies the top three products of interest among retail investors. They are: direct indexing (investment indexes that are tailored to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world outcomes); and personalised research (customised for each investor).

When it comes to this last product, it’s worth noting that choosing advisors with shared values is also becoming more significant. Three-quarters of respondents to the survey said having an adviser that shares one’s values is at least somewhat important to them. Another way a personal connection with clients can be established is through a strong brand, and the proportion of retail investors favouring a brand they can trust over individuals they can count on continues to grow; it reached 55% in the 2022 survey, up from 51% in 2020 and 33% in 2016.

 

TRUST IN THE FUTURE

As the pressure on corporations to demonstrate their trustworthiness increases, investors will also look to financial services to bolster trust. Wealth managers that embrace ESG issues and preferences, enhanced technology tools, and personalisation, can demonstrate their value and build durable client relationships over market cycles.

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5 tips to ensure CSR efforts come across as genuine

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By Mick Clark, Managing Director, WePack Ltd

 

Corporate social responsibility – or CSR – is playing an increasingly pivotal role in the long-term success of modern-day companies.

The harsh reality is that only a paltry 46 percent of people trust the brands they buy from. And with more competition than ever in all walks of business, a positive brand reputation needs to be earned or customers will simply take their money elsewhere.

That’s why I share my insights on the importance of CSR in modern business and introduce an effective plan to avoid coming off as disingenuous to your employees and customer base.

The value of CSR

The needs of modern employees and consumers are changing. There is a higher emphasis placed on the ethics and morals of companies and their handling of hot button topics like the environment or social issues.

59 percent of UK workers believe their business should be investing in charitable initiatives. 67 percent of people aged 18-19 feel this way, showing a generational shift in favour of companies that support ethical, social, or environmental causes.

Mick Clark

At WePack, we recognise the importance of this and make sure to regularly donate to a variety of charities including RRT (Rapid Relief Team), and donated £6,000 to the charity’s social causes last year.

An example of good CSR can be found in search engine giant, Google. It has had notable success with its CSR initiatives. Its flagship CSR campaign, Google Green, is a companywide commitment to using clean sources of energy, cutting down on its use of fossil fuels and drastically increasing energy efficiency as a direct response to the climate crisis.

It has been so successful that its data centres now require 50 percent less power to run than the average data centre and it’s poured over $1 billion into jumpstarting renewable energy projects.

Customer attitudes are fundamentally changing, and people are far more concerned about the values that their money could be indirectly supporting. In fact, 71 percent of customers prefer buying from businesses that align directly with their values.

In the modern-day, demonstrating high levels of CSR boosts brand perception. Businesses that make it a priority are more attractive – from an investment standpoint – to both customers and potential stakeholders.

For example, more than a third of consumers are also willing to pay more for a product or service if the business prioritises sustainability specifically – so it pays to be responsible.

Businesses with purpose-driven and ethical goals and proven commitments to CSR help retain employees. Millennials will make up 75 percent of the workforce by 2025, and it’s that cohort that is increasingly demanding socially responsible employers.

Those that fail to meet the needs will ultimately see their customers take their purchasing power elsewhere.

Addressing the challenges

As obvious as it may sound for a business to take on as much CSR as possible, many organisations face limitations.

Pressure from investors can disrupt the growth of CSR initiatives. Sometimes, the direction that stakeholders want to take the company doesn’t fully align with plans to target social or environmental issues.

Companies face becoming fixated on linking profitability with CSR programmes. It can be tough to present a genuine CSR programme without it coming across as a marketing ploy – presenting an extra hurdle for businesses to overcome.

Despite the challenges businesses face that are out of their control, many firms unwittingly make their own mistakes that cost them dearly.

For example, businesses can struggle to bolster their CSR programmes if they don’t consult their customers and staff first. A simple survey helps companies decide what issues to put as a priority and target to satisfy their customer base and employees.

Any attempt to create an effective CSR programme needs top-down support. Many businesses wrongly treat CSR as a separate entity, rather than fostering a companywide culture. This can lead any attempt to push back on global issues to appear disingenuous to those looking in.

Shifting the CSR approach

Because of the global shift in public needs and opinions in recent years, businesses need to better demonstrate their efforts to avoid having their campaigns labelled as a box-ticking exercise.

It’s no secret that consumers are doing more research and are becoming more switched on to spotting lacklustre approaches to CSR. Also, everyone can have their say online – it’s much easier to get exposed if your CSR campaign is nothing but an empty publicity stunt.

For example, Volkswagen’s reputation was left in tatters after its ‘greenwashing’ scandal promoted a newer, cleaner diesel vehicle that wasn’t any better for the environment than previous models. The company took it further by fitting a device that helped it cheat emissions tests – resulting in a $125 million fine.

For this reason, CSR campaigns need tangible results to be credible and trustworthy.

Sharing top tips

When it comes to structuring a strong CSR campaign, it’s critical to demonstrate several things to prove your strategy is effective in helping the chosen cause.

Firstly, evidence the fact that your efforts are helping wider communities. Whether it’s through statistics or showing proof of investment in social causes, tangible evidence goes a long way when legitimising your CSR campaign.

Secondly, balance your rhetoric. Effective communications are vital to the success of a campaign. However, it can damage a company’s image when done poorly. Businesses should speak about their chosen issues in their dialogue rather than spending too much time talking about the solutions the company has implemented. This stops them from becoming too self-promotional or sounding braggy.

To further avoid this, make sure you can directly tie your CSR campaign to corporate values and beliefs. As well as helping to strengthen your comms, it will also guarantee that company values are more than just surface-level – helping to facilitate tangible, long-term change.

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