Digital twins could play a key role in encouraging climate resilience
As disasters get more frequent and severe, the time for innovative technology is now
This new technology has the potential to enhance underwriting by providing a more accurate prediction of the future risks
The threat posed by climate change is increasing, endangering communities across the globe.
The most damaging hurricanes in the US are now three times more frequent than they were 100 years ago. They are also growing in strength, with Hurricane Milton sparking the biggest evacuation operation seen in Florida for seven years.
Globally, the number of wildfires has more than doubled. High tide flooding is now between 300% and 900% more likely than it was 50 years ago, depending on the region. The increasing frequency is being compounded by more unpredictable events, with the erratic path of Hurricane Beryl widely regarded as a landmark event by meteorologists.
However, while the risks are intensifying, new technologies, which could make new homes more resilient, are also evolving. Structures can now be built that can withstand a category five hurricane. New risk mitigation techniques can buttress homes even in the most catastrophe-exposed areas.
For insurers, innovation is needed in how we confidently test the strength of these new structures, price policies accordingly and incentivise risk mitigation measures. This will be achieved through the harnessing of different technologies that seem futuristic to the underwriters of today. Digital twins, while in their adolescence, could have this potential.
The insurance gap
The issue for the insurance industry at present, when it comes to the potential benefits of new technologies that enhance the resilience of structures, is our inability to quantify resilience and price policies accordingly. How can we accurately incentivise those who take an active approach to risk mitigation if we cannot be confident in their efficacy?
The existing tools are too blunt, the models too broad and the data too sparse. From a commercial perspective, it is not financially viable to develop a product for a handful of homes that have been built to a new, higher standard.
But what if we could test these new technologies quickly and accurately? What if we could price with laser precision, pinpointing structures that have been built to withstand a more volatile and aggressive climate?
Today, the insurance industry is being portrayed as backing away from some risks and increasing pricing, because, in general, areas are more exposed: but what if we could flip this narrative?
Turning to technology
One way insurers could assess risk is by creating virtual replicas – or “digital twins” – of buildings or even whole towns and running simulations to see how they fare against certain natural catastrophes, such as floods, hurricanes and earthquakes. By doing so, insurers could better understand the risks particular buildings face, such as those in close proximity to the coast, and better advise clients on their exposure.
Digital twin technology was pioneered by Nasa to enable it to test how craft and the components within would fare in space. A digital version of the ship was created to simulate and study how components would perform against a myriad of risks. They could then refine and strengthen the spacecraft. We could use this technology to incentivise home builders and city planners.
The results would help decipher what measures could be put in place and allow insurers to better price policies on a hyper-local level, recognising what has been built with the new risk environment in mind. In doing so, the technology can drive investment into resilient construction by proving a clear premium incentive based on a confident analysis of how it would perform.
While we are by no means certain this will become a reality, tools like digital twins have the potential to enhance underwriting by providing a more accurate prediction of the future risks.
Insurtechs have extraordinary capabilities and are renowned for cutting-edge innovations that help insurers enhance their resilience to climate-related natural catastrophes. The need for collaboration between insurers, brokers and insurtechs is paramount for clear solutions to be brought to the fore. As disasters get more frequent and severe, the time to act is now.
When we all come together, there is no challenge too great for the insurance industry to tackle.
Chris Skarinka is president of the public risk group at Tokio Marine HCC
