Space Age Ideas for the Insurance Industry — Digital Twin Technology and ITC Vegas 2024

Climate change is increasing the risks we face at an alarming rate. The most damaging hurricanes in the US are now three times more frequent than they were 100 years ago. Hurricane Beryl’s erratic path showcased a new level of unpredictability. Globally, the number of wildfires has more than doubled. High tide flooding is now between 300% and 900% more likely than it was 50 years ago depending on the region.

However, while the risks are evolving, so too are the technologies which could make new homes more resilient.

Structures can now be built to withstand a category five hurricane. New risk mitigation techniques can buttress homes even in the most exposed areas. At least in theory.

Sharpening our tools

The issue for the insurance industry is our inability to quantify this resilience and price it accordingly. The tools are too blunt, the models too broad and the data too sparse. The commercial rationale to develop a product for a handful of homes which have been built to a new higher standard is not strong enough.

But what if we could test these new technologies quickly and accurately? What if we could price with laser precision, pinpointing the structures that have been built to withstand a more volatile and aggressive climate?

Today, the insurance industry is being portrayed as backing away from some risks. Pricing is increasing, because, in general, areas are more exposed. However, I believe there’s a way to flip the narrative. To drive investment in more resilient construction by providing a clear premium incentive, based on a confident analysis in how it would perform. In order to achieve this, serious innovations in insurer’s pricing capabilities will be required, harnessing different types of technologies which seem futuristic to the underwriters of today.

Digital Twin technology, despite its adolescence, seems to have this potential.

Ideas from space

Digital Twin technology was pioneered by NASA to enable testing on how spacecraft and their components would fare in space. A digital version of the ship was created to simulate and study performance against myriad risks. The researchers could then use the data they gleaned to further refine and strengthen the spacecraft.

If Digital Twin technology continues to develop, the insurance industry can use the same technology to incentivize home builders and city planners. ?

Creating a replica of a building, or even a whole town, would allow insurers to test the impact of various scenarios and better advise clients on their exposure to catastrophes, based on tiny details of the building’s safety measures or its precise location.

The results could help decipher what measures could be put in place and allow insurers to better price policies on a hyper-local level, recognizing what has been built with the new risk environment in mind.

While we are by no means certain that this will become a reality, it is a great example of the sort of innovation that will be discussed at ITC Vegas. Insurtechs present some of the most cutting-edge innovations to help insurers enhance their resilience to climate related natural catastrophes. With the meeting of insurers, brokers, and insurtechs in Las Vegas in October, the industry will see all of these problems and possible solutions brought to the fore at a critical time, as disasters get more frequent and severe.

Tokio Marine Day is designed to do just that. It will comprise of two panels, one of which will solely focus on climate resilience, bringing a team of experts together to discuss the vital work the insurance industry must do. When we all come together, there is no challenge too great for the insurance industry to tackle.

I hope you can join in on the discussion on the day!