Many organizations and businesses use NCEI’s environmental data to make informed decisions about their goods and services. From transportation to agriculture, data contribute to both public and private enterprises. A farmer may use our climate records to know when to plant crops; a retail chain may decide the exact time to add sweaters or rain gear to the shelves.
One large business sector that relies significantly on our climatic data includes reinsurance, best described as insurance for insurance companies. Reinsurers offer traditional insurance providers a layer of financial protection against the possibility of major losses, particularly those from catastrophic weather or climate events.
When Weather Disasters Strike
The market for weather insurance has grown globally. Because incidents of extreme weather can cause losses in the billions of dollars, property insurers seek reinsurance coverage for backup when events turn catastrophic. When a large-scale event occurs, such as Hurricane Katrina, insurance companies use reinsurance to pay out the losses. Reinsurers use NCEI data to gauge risk on a larger scale, as expensive weather disasters can and do happen across all parts of the United States. In 2016, from California to Florida, 15 weather and climate disasters exceeded $1 billion each—the second highest number of events since 1980.
By applying NCEI data, reinsurance companies run scenarios to create a variety of catastrophe models. CAT models, as they are called in the industry, represent computer-generated simulations of specific risks associated with natural or man-made disasters. Our tropical cyclone and track data from satellites or storm data from radar stations are used to generate CAT models to determine pricing for reinsurance policies. The models are also used to determine, or validate, occurrences of disaster. In other words, our data assist before- and after-the-fact. The ultimate positive outcome is a quick response for communities, industries, and individuals needing to get back on their feet.
Report Cites Value of NCEI Data
For insurance and reinsurance firms, NCEI continues to be a crucial main source of credible and authoritative data, as cited recently by several user groups. Read an overview of the value of our data from a December 2016 report, “Success Stories on User Engagement.” The report compiles feedback from insurance and reinsurance representatives, reinsurance brokerage firms, CAT model developers, and NOAA.
NCEI data is invaluable to the reinsurance industry, and [it] would be really hard to put a tangible price tag on it,” according to one reinsurance climatologist interviewed for the report. “Everything that is being compiled and maintained is the foundation for so many transactions in the financial sector that, without it, we would lose literally billions of dollars of economic activity in the United States.” Hear more in the accompanying video.
Many specific NCEI data products add real-world value to the insurance/reinsurance sector. In the report, industry officials note several useful tools from NCEI, including Next Generation Radar Data (NEXRAD), useful for understanding an array of weather events, and International Best Track Archive for Climate Stewardship (IBTrACS), which compiles data on tropical cyclone tracks from around the world.