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How Weather Forecasting Affects Insurance Pricing

  • By:
  • Alliance Insurance Group
  • |
  • Feb. 25th, 2016

Inclement weather can impact any business, but no industry is affected quite as drastically as the insurance industry. Commercial insurance companies pay out billions of dollars every year after natural disasters sweep the country. The events that affect insurance pricing run the gamut from major catastrophic events to something as seemingly insignificant as hail. In fact, hail costs insurance companies more than $2 billion dollars per year, according to The Weather Company.

Thankfully, advances in climate science now allow experts to make more accurate predictions, which helps insurance companies to have a more refined understanding of an area’s weather risks. This in turn helps insurance companies to provide helpful information to brokers to share with policy holders. In short, when insurance companies have better information about weather patterns, brokers are better positioned to help inform clients of their business region’s climate risks.

For example, senior living communities often 'follow the sun'. Still, the warm locales where these communities often make their home aren't without risk. In fact, sunny locales are often areas that are prone to catastrophic weather like high winds, hail, flooding, or earthquakes. Working with an insurance specialist who has access to actuarial information can help business owners determine which regions may face more costly premiums.

Policy holders may question why they're paying more for premiums in a high risk area when they haven't filed any extreme weather claims themselves. It's important to remember that premiums are based on long-term, historical data. In other words, while your business may not have fallen victim to extreme weather, it's likely that, historically, many other businesses in the area have. What's more, the maps used to determine which areas are prone to extreme conditions are subject to change. While your business may not have been in a flood zone twenty years ago, FEMA may have redrawn the boundaries so you that you now are.

An insurance specialist can help to identify liabilities associated with your business location so that you can find the appropriate coverage. To discover more ways Alliance Insurance Group can help your business manage risk, contact one of our specialists. For more insurance topics, stay tuned to our blog.