When floods ravaged Calgary last month, Swiss Reinsurance Co. Ltd., a firm that works with Canadian insurers, turned to satellite imagery to prepare for what is likely to be the biggest flood coverage payout in Alberta history. The shift toward this interactive technology is helping the industry respond to vulnerability created by a rise in severe weather events.
Advances in satellite image definition and computer processing power now allow insurers and re-insurers to create more precise maps of flood, tornado and hail zones. That speeds up predictions of how many claims insurers will receive and can provide enough information to cut down on the amount of time adjusters must wade through disaster zones. More importantly, the technology justifies higher premiums for properties in areas identified by the images as being prone to flooding, hail storms, tornadoes and other natural disasters.
Severe weather has been a growing concern for the insurance industry for many years, says Insurance Bureau of Canada spokesman Steve Kee. The frequency and severity of natural disasters has been on the rise in Canada, and Alberta has accounted for more disaster-related claims than any other province in recent years. In Calgary, insurers face payouts "much higher" than the $300-million they covered during Alberta's last instance of major flooding, in 2005, Mr. Kee said.
As satellite imagery better illuminates risk, insurance premiums in some areas could rise, says Wayne Ross, vice-president of national property claims at Aviva Canada Inc., the country's second-largest personal and commercial insurer. "All insurers are looking at risk by peril, and weather patterns are changing significantly. If you're in a flood zone, they're obviously going to take that into account in your water exposure. Or if you're in a tornado zone and you're looking at wind losses," he said.
The amount of severe weather claims insurers have covered increased tenfold in the past decade, with catastrophic losses costing more than $1-billion in both 2012 and 2011, Mr. Kee said. Personal and commercial insurers have paid about $3-billion to compensate for losses in Alberta over the past eight years, not including last month's floods. When claims from a catastrophe or severe weather event exceed a defined threshold, an insurer turns to its own insurance provider, also known as a reinsurer, to spread out the risk.
Across Canada, aging sewer systems serving urban areas undergoing rapid development have increased the amount of damage a severe weather event can cause. This, along with basement renovations, has caused water claims to top fire damage as the biggest cause of home insurance losses in many parts of Canada, according to an IBC report published last year.
Swiss Re uses a software system called CatNet to overlay satellite images of severe weather onto Google Maps, allowing them to zoom in and assess the extent of a disaster soon after it occurs. With layers that include elevation data, distance to hazards and the addition of detailed map coordinates – a process called "geocoding" – CatNet can assess, point by point, where damage in the form of flooding, hail or wind is most likely to arise. Insurers affiliated with Swiss Re can add postal codes and the values of the properties they insure, which helps them refine their loss estimates. The data is also used by government agencies at the provincial and federal levels to assess damages and costs.
Many Canadian insurers rely on satellite imaging and mapping technology before and after disaster strikes. RSA Insurance Group PLC says it also uses both external data, including satellite imagery, and in-house tools to assess risk exposure.
From floods to earthquakes, the more data that is collected from around the world, the better the ability to predict losses, Mr. Ross says. "We will use satellite imaging on roof-type losses where there's a lot of hail involved, to measure and provide a quote without really seeing the property – it helps us assess the roof size and slopes, it speeds up the process," he said. "As we have these events, we can plug in more data and the brain gets bigger."
Satelite mapping and geocoding is also being used to estimate both the number of claims in an area and the need for adjusters by Intact Financial Corp., Canada's largest provider of home, auto and business insurance, which arranges reinsurance with Swiss Re. "We have been using geocoding tools in assigning claims to our field adjusters. By assigning each of them claims in a specific area, they spend more time advising our customers and less time travelling from one assignment to another," said Intact spokesman Gilles Gratton.
Swiss Re deployed its CatNet system in Calgary during last month's floods to provide images to its Canadian insurance partners, allowing them to see the extent of the flood damage and anticipate incoming claims. The Calgary deployment was the second time the company used the technology on a real-time basis following a similar response during floods that hit Central Europe earlier in June.
"We can't always beat Mother Nature, but the work we did with the satellite imagery data and the flood footprints gives you the picture as it unfolded," said Sharon Ludlow, chief executive officer of Swiss Re's Canada operations. "Now that the storms are over, we can determine what we can do in the city to mitigate the impact of this in the future."