Our industry is changing rapidly. Look at the numbers: 2023 saw $28 billion in weather disasters in the U.S., smashing the previous record of $22 billion a year before. And 2024 followed a similar trajectory with 24 such disasters by early December. All told, that's
Don't believe those who say an event happens once every 500 or 1000 years. Those events happen every year, just in new and unexpected places. Insurers must address rapid-fire events by leaning harder on advanced risk models to navigate an increasingly unpredictable future. But will better models be enough?
Understanding risk models
When it comes to pricing property risk and assessing the impact of severe weather events, catastrophe models are the backbone of our process. Most major home insurers, particularly those in high-risk areas for hurricanes, wildfires, severe thunderstorms, freezing and earthquakes, rely on modeling tools. Companies like
These models serve two key purposes:
- They calculate potential losses from catastrophic events like hurricanes, earthquakes and floods to help insurers adjust their appetite when they have too much or too little exposure to one severe event.
- They assess average annual losses to help insurers charge enough to cover catastrophe and reinsurance risks.
But here's the thing: traditional models have always leaned heavily on historical data. Makes sense, right? They look at past storms, calculate the odds, estimate damage and price accordingly. But what happens when the future doesn't look like the past? No two storms are alike. With climate change ramping up the intensity and frequency of extreme weather, the predictions are getting harder to pin down.
The push for forward-looking data
This is where things get interesting. While historical data is still the foundation of risk modeling, it's clear that insurers need to start looking forward, not just back. Climate change and other factors — like building in catastrophe-prone locales or with materials that don't stand up to natural catastrophe risks — are rewriting the playbook.
Take tropical storms Olivia, Milton and Helene as examples. Olivia intensified from a Category 1 to a Category 5 in under a day — the fastest ever observed. Milton and Helene both landed within 200 miles of each other — after 100 years without storms that size landing in the same stretch — inundating beaches along the entire Florida West Coast.
These storms sparked a debate about whether climate change played a role. The consensus? Climate change doesn't guarantee any one event will happen, but it certainly makes such storms more likely. The old ways of modeling risk struggle to keep up with the future's reality.
What's the solution? Insurers need to embrace new approaches. They must combine historical insights with future-focused common sense. This isn't adapting to change — it's about staying ahead of it.
The future of risk modeling
Even with all the tech at an insurer's disposal, the pace of improvement in risk model accuracy has been surprisingly slow. Each storm provides new data. New techniques are emerging. But the industry is shifting its focus from relying on models for accuracy to evaluating location and physical risk to drive resiliency. Instead of chasing perfect predictions — because let's face it, we'll never get to 100% — insurers are starting to prioritize simpler, more practical observations.
For example, we're seeing a renewed emphasis on insuring homes built to handle extreme weather. Elevated foundations in flood zones, wind-resistant roofs, creating a "safe zone" around buildings in fire-prone areas — these kinds of tangible changes are becoming just as important as complex theoretical models. It's a back-to-basics approach that prioritizes obvious risk over perfect prediction.
Insurer success today demands a fresh perspective on risk. We can't afford to rely solely on past experience, especially when climate change is reshaping the game in real-time. To stay ahead, insurers need to blend the best of both worlds: historical data for context and forward-looking standards for mitigation and building. Build what survives in a storm in a location that has natural protections from danger. Penalize unenforced building codes and structures that have little chance of surviving a worst-case scenario. The worst case happens more often than once every 500 years.
The message is simple: the future is unpredictable, but with the right tools and mindset, we can build a more stable insurance market and, ultimately, incent a more resilient future. Let's make it happen.
