Related Practices
AI Update: Texas Department of Insurance Approves ZestyAI’s Severe Convective Storm Models
The Zelle Lonestar LowdownNovember 13, 2024
Severe Convective Storms (“SCS”) are one of the most common and most damaging natural catastrophes in the United States. SCSs are intense atmospheric disturbances that can cause powerful winds, large hail, heavy rainfall, and tornadoes. To that end, SCSs caused $76 billion in losses in North America and Europe – a record for such weather events.
Based on preliminary data from NOAA, Texas tops the list of states with the highest incidence of hail in 2024, with predictions indicating that Texas hailstorms likely caused more than $28 billion in property damage during only the first four months of the year.
ZestyAI recently received regulatory approval from the Texas Department of Insurance for some of the first Artificial Intelligence-powered property-based predictive risk analytics products, which include Z-HAIL, Z-WIND, Z-STORM, AND Z-FIRE. According to ZestyAI, the high incidence of severe storms (with over 1,100 hail events in 2023 alone) is why it chose Texas as one of the first states to directly file its Severe Convective Storm product suite as a licensed Advisory Organization. The Colorado Division of Insurance and the Illinois Department of Insurance have approved these products earlier this year. Approval from other states is expected in the coming months.
ZestyAI’s products are AI-powered climate risk models that predict the frequency and severity of severe storm claims for properties in the United States and examine the interaction of climatology, geography, and the unique characteristics of every structure and roof, analyzed in 3D, including accumulated damage from historical storms. These predictions can then allow carriers to move from territory-based rate segmentation to property-by-property segmentation to better align pricing to risk. ZestyAI’s products also promise carriers the benefits of enhanced underwriting, improved loss cost control measures, and portfolio optimization.
According to a recent survey, there appears to be a growing consensus that AI is important for the future of the insurance industry with 80% of senior insurance leaders reporting that AI is enabling new avenues of profitable growth and 73% stating that carriers who adopt AI will outcompete those that do not. Of the leaders surveyed who have already adopted AI risk models, 81% believe they are ahead of their competitors when adapting to the challenges of climate change.
Although not everyone agrees as to which form of predictive modeling is most accurate, an overwhelming 90% of insurance executives agree that predictive risk models should be transparent.
The benefits of transparency serve both insurers and policyholders in that transparent models can open the lines of communication regarding risk management and risk mitigation strategies - fostering trust and collaboration between insurers and insureds and potentially minimizing catastrophic losses.
