If we analyze the Property portfolio of most insurance companies over the last decade, we will notice that the impact of flood losses on the portfolio is much higher than the impact of fire losses.
If we can master underwriting flood risk, we can create a profitable property book.
Wind perils and Earthquake can be underwritten at a macro level as far as location risk is concerned. We can identify high hazard districts.
However, the problem with flood risk related to property insurance losses is “City Flooding” due to poor drainage system. Almost every city is prone to flooding. Hence, we cannot underwrite at a macro level. We need to have an idea at a locality level within the city which are low lying areas and accordingly underwrite the same. This identification has to be done for every major city. Create a differential rating and load and discount based on nature of material, storage practices, plinth height, etc.
This is hard work. Why bother do all this? Reinsurers have told you charge a rate of 2.25 per mille if goods are stored in open irrespective of location and nature of goods. And charge a rate of 0.52 per mille if stored in closed warehouse, irrespective of location and other factors.
And these rates are for both wind perils and water perils together. In short, even for wind perils, where we can identify high hazard locations with much lesser hard work, why bother even waste that much time.
We are killing underwriting right royally. And some of us are very happy with this introduction of standard rates.
We have already killed the profession of risk engineers. We are next killing the profession of property underwriters.
Long live Property Underwriting and Property Underwriters.
