This article was created in partnership with Aon Edge.
Flood risk continues to plague the commercial property space as natural disasters and unexpected catastrophes seem to be increasingly frequent. According to research published by the University of Bristol in 2022, US flood losses sat at an average of $32.1 billion – that number was expected to rise to $40.6 billion by 2050. For commercial property owners it’s a dangerous outlook, with many still questioning which coverage is right for them – and which could potentially leave them open to huge losses.
“Currently, flood risks in the US are something of a fractured environment,” John Dickson, Aon Edge's president and CEO, told Insurance Business. “We have the National Flood Insurance Program (NFIP) that’s been around for five decades and, from a commercial perspective, it's what I would call a ‘good start’.”
While the NFIP program offers minimal coverage of $500,000 for the structure as well as $500,000 for the business’s personal property, it does not cover limits above that and it does not cover loss of income – something of an issue for property owners.
“For many commercial operations, the federal program is needed to maintain compliance with your loan,” added Dickson. “But it’s not necessarily what you need to maintain your business as a going concern. What we've seen over the last decade is a number of innovative capital solutions coming to market to help respond to that need – to help deliver a more comprehensive insurance solution so that these businesses can quickly recover and get back to serving their communities.”
For property owners, it’s a complex landscape – one which many still don’t fully understand. To stay ahead of the curve, Dickson advocates for sector education, encouraging professionals to help their clients make the right decisions when it comes to protecting their assets from flood risk.
“The very first step is awareness and education,” he told IB. “We talk about using our data, our analytics and our experience to help customers make better decisions. [It’s about] understanding today's flood risk – not looking at yesterday's experience to make today's decisions is essential. For example, many folks will look at the flood insurance rate maps, which will tell you whether the flood zone is an A or an X or V, and that will be the end-all of their flood risk assessment.”
The problem? Some of those maps actually date back to 10 or 15 years ago, meaning the assessment is inaccurate and outdated.
“[Doing this] makes it very challenging to make a determination about your risk today,” warned Dickson. [At Aon Edge], we advocate for looking at current tools, current resources, current capabilities, models and actuarial analysis to help property owners make better decisions.”
It’s important to remember that not all flood risk insurance packages are the same, and what works for one client won’t necessarily work for another. As Dickson told IB, it all begins with understanding the varying limits.
“If we go back to the federal program,” Dickson began, “that’s a very hard set, ‘one-size-fits-all’ limit for half a million dollars. Many, many property exposures are worth far more than the $500,000 limit that's available. Today there are a number of solutions that can write limits $10 to $20 million or more to cover more complex, more modern structures.”
Dickson is quick to remind owners that no one fully knows their business besides them, and to keep that front of mind when making any decisions.
“What is your business income? What is your income stream dependent upon? And if that is disrupted, what does that mean for your business? There are solutions today that can reimburse you for loss of business income in the event of a flood – and that’s something rather new in the world of flood insurance today.”
This is where Aon Edge’s offerings come into play - especially in regards to speed and efficiency. Its underwriting process, Dickson told IB, is super streamlined benefiting both the agent and the policy holder. Something that’s reflective of today’s “Netflix-style,” instant-gratification mindset.
“We live in this very modern culture [with] Amazon Prime’s ‘order it now and have it at your doorstep end of the day’ type culture. And we try to be responsive to that because things do move fast today. Our platform, our experience, allows us to tap into real-time decision making capabilities – looking at our catastrophe model and our risk scoring – and provide a score, assess the risk associated with that property and generate a premium on the back of that assessment.
“[It lets us] quickly present a solution to a property owner and their insurance professional. This allows people to make very quick decisions, not spend weeks or months trying to deliberate about what's best for them.”
This tech-led approach to customer service is something that runs through the DNA of Aon Edge. Its team is constantly leveraging data, technology and innovative tools to important the flood risk assessment process – meaning it’s both highly accurate and super-fast.
“This really is one of our strengths,” added Dickson. “We have our own catastrophe model that Aon has created – it’s one of the leading models in the flood insurance space.”
Aon also uses large language models to help make underwriting decisions and to guide its teams through the process – all of which couldn’t be done without its expert analysers.
“We have a number of risk analysers that are geared to help guide the property owner and the insurance professional through that decision making process. [At Aon Edge, it’s all about] helping quantify and visualize risk differently than anybody else does today.”
Find out more about Aon Edge here.
