There are a number of axioms that can help us understand the challenges around risk assessment and mitigation efforts that impact the insurance industry. You’ve heard, “If a tree falls in a forest and no one is around to hear it, does it make a sound?” I’ll add a new one to the mix: if risk mitigation activities occur in a community, but none of the relevant stakeholders know about it, did it reduce risk?
This revision of the classic axiom can help us better understand the tragic Champlain Towers South condo collapse in Surfside, Florida, and how to ensure these sorts of catastrophic losses do not occur again. Not only do we have little insight into where mitigation activities are occurring, we also have little insights into where risk mitigation activities should have occurred, but did not.
We talk regularly about the need to double down on risk assessment and mitigation activities given the increasing threat posed by various perils—hurricanes, severe convective storms, floods, and wildfires among others. The good news is that many communities are heeding that advice with mitigation efforts being planned, executed, and documented. However, they are typically documented in an endless list of proprietary data formats, locked away in siloed data systems, managed by a range of different stakeholders. So, despite the important mitigation efforts being completed and the significant investments being made, they too often fall silently—like the tree in the forest—with insurers often unaware, and thus unable to account for mitigation activates in their risk selection and pricing processes.
In the Surfside condo collapse, many of the news reporters asked survivors about their first indication that something was wrong? Survivors understandably focused on the loud noise, the shaking, and the dust, as half of the twelve-story building catastrophically failed. However, the first indications occurred years prior, as spalling, cracks, and water penetration got progressively worse. In preparation for a required 40-year building inspection, the condo association had hired a consulting engineer who highlighted significant structural concerns, substandard workmanship on previous repairs, and the ill effects of decades of delayed maintenance. The condo association and the various owners debated and ultimately delayed action for several years over the significant costs and how to split those costs.
The extent to which the local building officials knew about, understood, or possibly misrepresented the gravity of the situation will likely be decided in the courts long after the dust settles. Nonetheless, what is clear is that it wasn’t the lack of information that was the problem, but a lack of getting that information into the hands of key decision makers. Calls for additional inspections — conducted more frequently — will have limited impact if that information continues to exist in siloes, unavailable, and effectively unknown.
This is not a problem confined to Surfside, or even South Florida, it is a national problem. It is also an existential problem in the insurance industry. There is tremendous information collected about the properties we insure and the communities in which those properties reside, but much of that information is tantalizingly out of reach.
Efforts to standardize the documentation and data collected about different types of risk mitigation efforts, and quantify the impact and benefit of risk mitigation activities outside of laboratory settings, are gaining momentum. And calls for improved data sharing are getting louder. But significant hurdles remain.
Entities who create, collect, or maintain mitigation data — which are typically outside of the insurance industry — have little incentive to change the format of their data, much less to share it to accommodate the insurance industry’s needs. They must first see a benefit for themselves that outweighs the costs to change. A key incentive for those in the public sector, who control much of this data, is the ability to evaluate and benchmark their performance, which can only come when there is consistency in how these mitigation activities are measured. And finally, developing a proprietary data sharing ecosystem where one for-profit entity is in charge of who gets what information, and for what price, ultimately threatens the whole risk mitigation enterprise.
How can openIDL make a difference
This is where openIDL can make a difference, as it offers a glimpse of a workable, adaptable, and scalable alternative. openIDL is a Linux Foundation initiative that was developed to address similar challenges in the regulatory data sharing pipeline for insurance data. Traditional data sharing approaches and pipelines presented more problems than solutions, whereas openIDL turned the traditional data sharing model on its head — sending the query to where the data is securely stored rather than the other way around.
With mitigation data, we need an approach where those who create and maintain data about mitigation activities maintain control over how their data is shared, who has access, and for what purpose. We need an approach that can break down the barriers that limit data sharing and thus limit the ability to evaluate the impact of mitigation activities to help those local agencies, local community groups, and local property owners demonstrate the value of the equity — be it financial, organizational, or sweat —they put into mitigation efforts. And we need an approach that limits the ability of third parties to monopolize data access while still allowing those with proprietary datasets a collectively beneficial and financially sustainable way to contribute to our detailed understanding of the peril.
To be clear, collapses, catastrophes and individual losses will still happen, but as insurers, our underwriting efforts rely on our ability to differentiate between those taking mitigation seriously and those who are not. openIDL provides the means to help move the needle enabling communities conducting risk mitigation activities to become invested in optimizing risk selection as underwriters. We cannot afford for mitigation be simply a fashionable buzzword. It must be an indispensable part of the whole insurance data ecosystem. If there is a lesson to be learned in hindsight from the Surfside condo collapse it is that the information was there, we just weren’t listening.
Visit our openIDL wiki to learn more and get involved: wiki.openidl.org
About the author:
Dr. Matt Hinds-Aldrich has led several national initiatives and projects to improve how fire departments across the country and across the globe collect, analyze and use data to focus their efforts, improve their operations, and demonstrate their value. At American Association of Insurance Services (AAIS) he helps lead the development, expansion, and adoption of the FLAMES (Fire Loss and Mitigation Evaluation Score) methodology for insurers to assess local fire protection and mitigation efforts.
Photo by Jeff Finley on Unsplash