Is adverse selection lessened if insurers use Env.Agency info on flood risk instead of relying on postcodes?

Question

Need to understand if adverse selection in insurance is reduced if insurers use detailed info from the environment agency instead of just postcode details of an area. Thanks.

Answer 1

Environment Agency (and other agency) data is provided in such a way that it can be used as input into mapping software.

Post Codes can be input into mapping software.

All policies have a postcode or in the case of multilocation business postcodes associated with them - these can be input into the mapping software - the claims experience for the insurance company can there for be mapped and its potential exposure for a location evaluated.

Historical weather information can be loaded into the map.

The effects of a potential rise in the water table / river and or tides etc can be modelled as well.

The aim of the insurance company is to gain a 'picture' of what they are offering to insure.

Whether they accept or decline a risk is down to the underwriting strategy (which also includes the price of course) of the company.

Some insurance companies feel they are able to carry riskier risks than others because of their reserves and the risk profile of the risks they have already covered - others don't.

Of course the higher the risk the higher premium they will charge.

(A similar thing - some insurance companies will insure ex-drunken drivers on motor insurance - others won't)

Hope this helps.

Answer 2

Insurance companies have the information that is published by the environmental agency, so they are taking that into consideration as well when underwriting is taking place.