Earth Observation Will Fundamentally Change Insurance

Earth Observation Will Fundamentally Change Insurance

(Parinacota and Pomerape volcanoes, Chile. Image source: NASA.)

For those in the property/casualty industry paying attention to Earth Observation, 2023 has been a banner year. In early August, NOAA announced a significant loosening of regulations for commercial observation satellites, removing over 30 restrictions imposed in 2020. The decision was an encouraging one for industry leaders in the US, positioning them to compete on a global scale—and indicating regulation may finally be catching up to satellite technology. 

The implications for P&C insurance cannot be overstated. With a more generous regulatory environment, carriers can expect higher-resolution imagery, lower launch costs, and increased use case innovation. As impressive as this technology is today, the next 3-5 years will see exponential growth in the value it creates for insurers. I believe we are entering a new age for Earth Observation technology, and for insurers too – if they play their cards right. 

The Current Trajectory of Earth Observation

What is the state of Earth Observation (EO) today, and where is it going? More importantly, what does it all mean for insurers? To answer these questions, it is helpful to consider two key factors: quality of imagery resolution and frequency of coverage. 

Satellite imagery has historically lagged behind other sources when it comes to high resolution (i.e., 5-10 cm). But this is largely due to legal restrictions imposed by regulatory bodies, not limitations inherent to the technology. In fact, thanks to recent improvements in sensor technology and their pay-loads, very low earth orbit (VLEO) satellites will offer greater precision and refresh than ever before. As regulations continue to adapt, we may soon see resolutions comparable to aerial imagery providers.  

The other relevant factor is coverage, which has also seen recent improvements. It is cheaper than ever to launch an observation satellite. There are now over 1,000 observation satellites in orbit, photographing every corner of the globe at a frequency unmatched by other sources. SAR technology from companies like Iceye, Capella, and Umbra can even see through cloud cover, obtaining images that aerial and optical sensors are unable to capture. New advancements in optical, thermal, and hyperspectral sensors from companies like Planet, Satellite Vu, and Albedo will bring more critical insights to the insurers, especially as they tackle climate risk and portfolio resilience. 

All this is to say: satellite imagery is poised to be an excellent option for both resolution and coverage. The main thing holding it back at the moment is regulation, which could change at any time. When it does the full potential of Earth Observation will be unleashed, opening the door to powerful new use cases for insurers: the ability to effectively monitor spectral change at scale and resolution, ultimately helping to predict future outcomes.   

Prediction & Building Resilience

The power of prediction has an obvious appeal in our current landscape. Climate change has rendered many historical peril and risk models obsolete. Increasing event severity has made insurers hesitant to write policies in high-risk regions where the effects of natural peril ensue—especially after strict new governmental regulations. On top of this, recent rate hikes have insurers scrambling to rebuild trust with reinsurers and regain control over risk. In such an environment, who wouldn’t want insights to help see the future? 

The predictive power of Earth Observation is proven daily. Satellites launched by Lockheed Martin measure lightning intensity to send out early tornado warnings to vulnerable communities. Iceye and Capella monitor the impact of floods on global communities caused by natural and man-made events. Planet is creating specific climate change variables to better forecast yields and crop failure. Other EO satellites measure the size and movement of mosquito populations to predict disease outbreaks.  

The key is to analyze EO data with that other technology of the moment, artificial intelligence (AI). It turns out when you do this, you can reveal correlations between visible property condition and losses and train models to predict future claims. On a larger scale, you can track complex variables across the globe to help predict the impact of catastrophic peril events (scientists typically track over 50 such variables when simulating the effects of climate change). As the quality of available imagery improves with greater refresh rates – and it will if the regulatory environment continues to soften—the reliability of these predictions will increase exponentially. 

Insurers will applaud this news, and not just because predicting future claims means better loss ratios. It also allows them to provide a greater value to their customers: the opportunity to build resilience together. Building resilience means getting ahead of risk, not reacting to it. It means noticing red flags on a property before disaster strikes and working together with the insured to eliminate the risk.  

Launching into the Future

Apollo 11 wasn’t built in a day, and the full potential of EO for insurers won’t be realized overnight. While the recent decision from NOAA is promising, there are still hurdles to overcome before higher resolution optical and hyperspectral become available on a commercial scale. In addition, the infrastructure of the satellite industry is unevenly developed, especially when it comes to disseminating imagery on an enterprise scale. Ongoing debates about privacy will also no doubt play a role in the industry’s future. This is not to mention the role that aerial imagery providers will continue to play. 

Yet, I still insist that regardless of the form it ultimately takes, the future of Earth Observation for insurers has arrived—and the time to talk about it is now. New and innovative solutions are being developed every month that prove the power of EO to predict, prevent, and build resilience. As they innovate, insurers will likely pay close attention, and even consider making proactive investments in this technology—or else risk missing out on a brave new world of Earth observation.

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