A recent report by the International Association of Insurance Supervisors (IAIS) has urged the insurance industry to strengthen its awareness and understanding of climate-related risks.
However, the historical challenge with this is that traditional modeling tools used by insurers to assess risk are no longer adequately equipped. As a result, too many insurers are making less than accurate predictions based on historical patterns/data.
For example, underwriters typically rely on risk engineering surveys conducted on-site when it comes to determining the structural risks associated with critical infrastructure such as dams or mines.
Such assessments are generally conducted with intervals of several years meaning that unpredictable weather patterns alongside aging structures result in risk reports becoming quickly outdated.
This is where satellite observation and aerial imaging play a critical role in improving things. Satellite technology and specifically satellite-based risk assessments and monitoring is now increasingly seen as an almost real-time, in-depth way for underwriters to better understand where the risks are when it comes to critical infrastructure impacted by changing climate patterns.
This capability is absolutely crucial when you consider that research from the International Commission on Large Dams (ICOLD) shows that dams around the world are aging and many are entering the ’alert’ age where they are older than 50 years.
This is already having an impact in the US, where the average age of a large dam is 65 years and where there has been an average of 24 dam failures per year since the 1980s.
A failure in recent years occurred in Michigan that saw the Edenville dam breached, resulting in flooding that caused more than $200m in property damage and the evacuation of 10,000+ people.
Even more recently, just last year the devastating impact of flash flooding breaking through two aging dams in eastern Libya (the Abu Mansur dam and the Al Bilad dam) resulted in the deaths of several thousand people.
There are also significant risks when it comes to mines, with experts at World Mine Tailings Failures, a nonprofit tracking TSF failures worldwide, forecasting there to be 13 catastrophic TSF failures between 2025-2029 with a cumulative cost of $32.5bn.
Historically the use of satellites in the insurance industry has been sparse due to perceived high costs. However, the surge in claims and losses globally driven by changing climate patterns pushing critical infrastructure to breaking points is resulting in a shift in attitude and adoption.
Satellite-based risk assessments and monitoring are now providing insurers with an affordable capability to analyze risk well ahead of time in order to make more informed, accurate decisions and improve their loss ratios. This is because analysis of the data provided by satellite technology enables extremely accurate detection of movement and deformation, which could lead to significant structural risks.
Additionally, by supplementing this type of data with further datasets such as information on changing temperatures, precipitation levels, and other geological phenomena, insurers can produce far more comprehensive risk assessments. This means they can better understand whether a critical asset needs repair or maintenance, or if everything remains in order in terms of structural behavior falling within its engineering thresholds.
We have already seen that satellite-based structural health audits for critical infrastructure have prompted risk mitigation on multiple large-scale sites. Additionally, potential problems pinpointed by these assessments have been confirmed during on-site investigations so remediation can be carried out.
Changing climate patterns (2023 was officially confirmed as the world’s hottest year on record) are also having a significant impact on damage to properties and cities due to causing subsidence.
Take France for example, where the combination of increasingly hot temperatures and decreasing levels of precipitation over recent years has resulted in over 10 million houses currently being at risk of subsidence.
France Assureurs, an insurance industry trade association, estimates that the total cost of insurance claims relating to property damage caused by subsidence in France will reach €43bn for the period of 2020-2050.
Meanwhile, in the UK, figures from the Association of British Insurers (ABI) revealed that the summer heatwave of 2022 saw 18,000 subsidence claims in the second half of the year – equivalent to one claim every 15 minutes.
Increased periods of hot temperatures and in some cases, droughts in recent years have caused ground deformation in many locations, particularly in areas abundant with clay soils.
Ground movement on this scale can cause significant damage to buildings and other infrastructure, including cracks in foundations and other construction or resulting in pipes bursting.
Whereas previous methods used by insurers to identify the potential of subsidence have not been able to understand or quantify the risks, satellite-based monitoring and risk assessment is now offering this capability.
With highly accurate and up-to-date deformation detection capabilities, spaceborne risk assessment is providing the means for insurers to tackle the challenges posed by climate change-related subsidence today, tomorrow, and for the long term.
