Weather forecasting cuts weaken insurance risk mitigation

Takeaways:

• Weather forecasting agency cuts will leave a data gap
• Lack of updated data will make it harder to predict and mitigate risks
• Reinsurance exec says insurers and industry need to 'step up'

Cuts to U.S. federal weather forecasting agencies will create information gaps that cannot be filled only by private companies, industry analysts and executives say.

Expecting private industry, including the insurance industry, to fill in these gaps, is not realistic, according to speakers at the recent summer meeting of NAIC, the association of state insurance regulators. Having a gap in data from the National Oceanic and Atmospheric Agency (NOAA) and the National Weather Service will affect catastrophe modeling and insurance risk management, as well, they said.

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"We're talking billions and billions of dollars over decades of satellite data that has been put into the atmosphere," said Steve Bowen, chief science officer at Gallagher Re. "Are many companies going to be willing and have the budgets to be able to pay for this type of data that historically has just been freely available?"

A gap in weather data distorts modeling and forecasting, as Matthew Nielsen, senior vice president of regulatory affairs at Moody's, described. "We're going to be relying more on the older data than we are anything that would be happening more more currently," he said. "It really gives us a blind spot for how things might be evolving, what we're learning about weather, what we're learning about the science of the atmosphere and meteorology. It does create those areas where we would have to use models to fill in those gaps, so it does raise the uncertainty." 

This, in turn, will impact real-time responses to weather catastrophes, particularly forecasting and mitigating the damage they cause. "Data from NOAA, FEMA, the USGS and NASA is absolutely critical in helping to tell that story," Bowen said. This data feeds forecasting models and communications efforts from organizations like Moody's, the Institute for Business and Home Safety and others, Bowen added. "At the end of the day, a privatization model doesn't work when it comes to weather enterprise," he said.

Still, collectively, the insurance industry and other industries could "step up" to continue collecting and distributing key climate and weather risk data, according to Bowen.

"The NOAA data is of paramount importance. You're currently getting it for free, but there has to be a financing model," he said. "Lots of entities have used the data and monetized the data. There's got to be a way for the industry to step up and say this is of such importance that we'll work out some financing model where each individual company isn't on the hook for the data, but they will have a shared responsibility if they want to use the data."

Bowen challenged the NAIC audience to work around expecting tax credits and funding for programs. "Last I looked, folks down in D.C. aren't interested in any of those things," he said. "Think about, if it's so important, maybe you should come to the table and say, 'here's a way that we can have a shared financing model to keep this going.'"