Climate models are no longer anchored in historical hindsight – they’re evolving into tools for stress-testing an increasingly volatile future. For Kevin Sharp (pictured), chief risk officer at ICAT, that shift is fundamentally reshaping how carriers and MGAs approach commercial property portfolios.
“We have the ability to stress test how our risk might change in a scenario with increased tropical cyclone activity,” Sharp said. ICAT’s modeling vendor, Verisk, now enables users to simulate how rising sea surface temperatures and intensifying storms might affect exposures. “We can’t predict exactly what’s going to happen in the near to midterm future,” he said, “but if sea surface temperatures continue to rise, what might that mean for our portfolio?”
Beyond long-term climate shifts, shorter-term atmospheric patterns like the El Niño–Southern Oscillation are beginning to gain attention. While not yet fully integrated into catastrophe (CAT) models, Sharp said they’re poised to become part of future risk calculations. “We know ENSO impacts tropical cyclone activity in both the Atlantic and Pacific Oceans,” he said. “While its effects aren’t yet integrated into current catastrophe models, that’s likely to evolve.”
While CAT modeling grows more sophisticated, inflation and reconstruction costs are widening another exposure: systemic underinsurance.
“After a major CAT event, everything costs more than it would have otherwise, from materials to labor,” Sharp said. “This is a real problem because it can lead to claim disputes and ultimately erode customer trust.”
To mitigate this, ICAT embeds valuation discipline early in the underwriting cycle. Properties are physically inspected, with updated cost indices, construction details, and inflation guard features factored in. “We physically inspect every property we underwrite,” Sharp said, adding that values are re-evaluated at each renewal.
Automatic annual adjustments help protect insureds from falling behind on coverage. “What a property was insured for last year may no longer be adequate this year,” he said. While pricing competitiveness can make that a tough conversation, Sharp said it’s essential. “You need to ensure your property is properly insured, not just competitively priced.”
Technological advances – from high-resolution imagery to AI-enhanced analysis – are expanding the boundaries of risk selection and event response.
“Flood risk at one location could be completely different than it is 50 yards away,” Sharp said. “We now have higher resolution representation of these events.” With more granular data comes the need for smarter triage. AI now helps ICAT scan aerial imagery to identify high-risk buildings quickly. “Instead of reviewing thousands of images, AI can highlight the ones you should focus on.”
That’s especially valuable in the wake of CAT events, where timely decisions matter. Still, Sharp stressed that AI’s role is supportive, not deterministic. “AI isn’t a replacement for people,” he said. “I don’t see any future where we eliminate the role of the underwriter.”
State-level regulation continues to disrupt traditional models, particularly in Florida and California. “Those always seem to be the states that are top of mind,” Sharp said, recalling the legal fallout after Hurricane Irma in 2017. “What happened in the past can’t necessarily be relied upon to predict what’s going to happen in the future.”
While legislative reforms have eased some of the friction, Sharp said the landscape remains fluid. “You often have to estimate impact based on qualitative information without knowing exactly what regulators will decide.”
That uncertainty has forced many standard carriers to scale back, especially in wildfire-prone zones. It’s created space for excess and surplus (E&S) carriers to grow – but with caution. “You’ve got to diversify, understand your reinsurance costs, and make sure your rates are adequate,” Sharp said.
With reinsurance pricing still near historical highs, disciplined risk selection is critical. “Rates have softened slightly over the past couple years,” he said, “but we’re still near all-time highs.” Even opportunistic entries, he warned, require tight portfolio control. “It’s about balancing the product your insureds need with the discipline required to maintain a profitable portfolio.”
