How Geospatial Data is Revolutionizing Risk Assessment in the Insurance Sector

The UK is grappling with escalating climate challenges—from rising temperatures to unpredictable weather patterns. This shift not only impacts daily life but also fundamentally alters how the insurance and property sectors operate. Climate risk is no longer a theoretical issue; it’s a pressing concern that necessitates immediate and effective adaptation measures.

Understanding Climate Risk: More than Just Weather

Beyond Physical Damage

The risks posed by climate change extend far beyond the damage caused by extreme weather such as storms and flooding. These factors also include economic uncertainties that require innovative strategies to ensure financial stability. Properties are influenced by a multitude of climate-related risks—including flooding, overheating, and subsidence—as well as transition risks that can diminish a property’s marketability.

Evolving Needs for Insurers

To effectively navigate these challenges, insurers must move beyond conventional historical data and forecasts. There’s a pressing need for precise, location-based insights that help measure, predict, and manage risks. Geospatial data providers like Ordnance Survey (OS) are pivotal in filling this gap, offering detailed geospatial intelligence essential for climate risk modeling.

By harnessing advanced location data, the conveyancing industry can better assess, insure, sell, and finance properties while aligning with climate-related practices outlined by the Law Society.

Risk Pricing and the Importance of Accuracy

The Dangers of Underpricing

Insurers face the dual challenge of underpriced premiums intended to attract clients while simultaneously risking financial instability if they hastily raise rates. A significant shift is needed towards property-specific pricing, rather than relying solely on broad postcode-level assessments that ignore variations in property types, ages, and exposures.

Image Source: Ordnance Survey

Addressing the Tragedy of the Horizon

Mark Carney, former Governor of the Bank of England, termed climate change the “Tragedy of the Horizon”—a market failure with long-term impacts excluded from financial institutions’ decision-making timelines. To mitigate this, better financial disclosures and risk management frameworks are crucial, aided significantly by OS data.

Predictive analytics combined with geospatial tools pave the way for more granular risk assessments. For example, mapping wildfire risks accurately allows insurers to devise tailored policies that reflect specific vulnerabilities.

Climate Change: Challenges for the Built Environment

The State of UK Housing

The UK’s housing stock faces challenges as many homes, particularly older structures, struggle to cope with rising temperatures. A staggering 20% of homes are at risk of overheating, with predictions suggesting this could escalate to 90% by 2050. Vulnerable areas, like urban heat islands, exacerbate this concern, especially in cities like London.

Retrofitting for Resilience

For banks and insurers, overheating homes signify broader risks. Climate phenomena such as heat stress, flooding, and subsidence pose serious threats to the insurability and market value of properties. As the UK commits to building 1.5 million homes, there’s a pressing need for both retrofitting existing structures and implementing climate-resilient designs in new developments.

Consultation with insurance brokers becomes essential for property owners to ensure adequate coverage against climate-related risks.

New Layers of Insight: The Role of Datasets

Leveraging the National Geographic Database

The National Geographic Database (NGD) from OS is set to expand, incorporating new datasets that provide detailed information about the physical state of buildings. This information allows insurers to identify high-risk properties accurately, enabling improved underwriting processes.

Using tools like Map Impact’s HeatView, stakeholders can assess the vulnerability of properties to heat stress, fostering innovative mitigation strategies.

Integrating Geospatial Analysis with Expertise

Collaborations between OS and organizations like Martello are redefining how property legal professionals navigate climate risks. Martello is aligned with the Law Society’s climate practice guidelines, assisting conveyancers and homebuyers in understanding the complexities of climate-related property risks effectively.

Historic Maps as Predictive Tools

Martello’s approach includes analyzing historic maps to reveal hidden risks, such as properties built on contaminated land or areas susceptible to subsidence. By combining automated analyses with expert human insight, they provide a comprehensive overview of property-related environmental risks.

Transition Risks: Navigating New Challenges

Understanding Physical vs. Transition Risks

OS data informs financial institutions about their exposure to climate risks over manageable timelines. Insurers can utilize this knowledge to account for both physical risks (like floods) affecting loan repayment and transition risks tied to shifts in market or regulatory frameworks impacting borrowers.

Regulatory Changes Impacting Insurability

As the UK transitions to net-zero goals by 2050, strict regulatory measures may render properties with low energy efficiency ratings less insurable, which in turn affects market value.

The Power of Location Intelligence in Risk Assessment

Enhancing Risk Analysis with Geospatial Insights

OS data allows insurers to delve deeper into individual properties, enhancing the accuracy of flooding, heat stress, and subsidence modeling. By considering property-specific data, insurers can ensure insurance premiums are appropriately calculated, and properties are valued accurately.

Building Long-Term Resilience

Integrating geospatial intelligence into risk frameworks is becoming essential for insurers and valuation providers. As climate risks gain urgency, the ability to assess property-level exposure becomes a distinguishing factor for success.

Conclusion: Act Now for a Resilient Future

The value of geospatial data transcends mere numerical assessments; it shapes strategic investment decisions and enhances understanding of climate-related risks. With climate change presenting immediate threats, actionable collaboration and informed decision-making are essential. The time for transformation is now—stakeholders must act decisively to ensure a climate-resilient future for the UK.