In pursuit of perils


In pursuit of perils

Risk models are more important than ever to the way re/insurers operate. It is therefore no surprise that a growing demand has developed for models covering new perils, new regions and customised offerings, as Steve Bowen explains to Bermuda:Re+ILS.

While all perils are important and potentially problematic to re/insurers, some can be more costly than others. From a US and Bermuda perspective, the costliest peril remains hurricanes given their large-scale nature and how much insurance coverage is required along the coastline to indemnify them.

This is typically a focus and primary driver for the industry as a whole, with companies tending to have an acute focus on the peak of the Atlantic hurricane season in particular.

This is also a key focus for Aon Benfield’s Impact Forecasting team, but as Steve Bowen, Impact Forecasting’s associate director and meteorologist says, the spotlight more recently has also been on the flood risk associated with this peril.

Impact Forecasting is in the process of updating its US flood model, which should be ready to be released sometime soon. “There has been a great deal more interest in the riverine flood/inland flood perils as well, so that’s our immediate focus,” says Bowen.

In terms of severe weather perils there have been significant losses in recent years from hail and damaging straight line winds—a peril that has also become even more important to the industry since the historic season in 2011, Bowen says.

“So speaking solely for the US, these perils tend to be the main ongoing focal points,” says Bowen. “There’s always the risk of earthquake, but we haven’t had a mega-quake of great loss since 1994.”

Vital information

The work of Impact Forecasting is growing in importance against a backdrop of analytics becoming an increasingly central part of the way all re/insurers operate.

Bowen says the fact that there is more data available means it is easier for firms to interpret the different types of information when coming up with loss projections and trends in order to form new risk analysis methods—not just by country, but by peril, loss and other variables.

“With more data availability and greater accessibility, analytics is becoming increasingly important in terms of allowing insurers, businesses and the public sector to gain a better understanding of where some of the future risks lie,” says Bowen.

There are, however, some challenges associated with modelling new and emerging jurisdictions and risks, as well as some untapped potential to explore unmodelled risks in certain parts of the world.

Depending on where in the world you are looking at, “sometimes the government will require approval of the model before you can move forward,” Bowen explains, although this varies by country and is not seen consistently.

“Analytics is becoming increasingly important in terms of allowing insurers, businesses and the public sector to gain a better understanding of where some of the future risks lie.”

Beyond the political aspects, he notes much insurance demand which could be developed by good risk models in some of these areas. Bowen describes an increased demand for flood models in Latin American emerging markets, especially countries such as Brazil, Argentina and Chile.

He goes on to explain how Aon Benfield is starting to see more insurance penetration in Latin America as well as parts of Asia and Africa, where he says there is also definitely going to be more demand.

“Impact Forecasting has a broad suite of models for different perils around the globe already, but our immediate focus moving forward will be developing new models in the emerging Latin American and Asian markets,” he says.

Customised wind models

In terms of custom-built weather models, Bowen says that while there are a lot of existing models out there, it is hard to say whether clients are shifting their inclination towards these structures.

Bowen explains that custom-built model solutions can be developed for unique business lines or examination of actual claims history, and that Impact Forecasting also offers unique report generation features that are perhaps not supplied by other modellers, providing a more in-depth understanding of ‘what if’ sensitivity.

The question remains as to whether client support is a necessary prerequisite for modelling firms or whether they can take the lead on modelling risks in emerging jurisdictions.

Bowen believes the two parties work in tandem. After all, clients have specific requests for certain areas and the modellers have the capabilities to trade the models.

“If a company is looking to penetrate a new market, it needs to get more information on the certain types of risks for different perils,” he says. “It depends on the specific situation, but there is often a collaboration effort between the two.”

Bowen concludes by pointing out how Impact Forecasting differentiates its weather modelling capabilities from others in the industry. “Aon is unique in the sense that it is the only intermediary that has its own in-house modeller, which separates us quite distinctly,” he says.

He adds that Impact Forecasting’s internal modelling has shown that its output can rival and potentially exceed that of the biggest firms in the industry in terms of specific capabilities.

“We don’t necessarily have the market penetration that a company like RMS may have, but by being increasingly visible, and by showing our results and our ability to compete, there are many market opportunities for us moving forward.”

Steve Bowen is associate director and meteorologist at Aon Benfield’s Impact Forecasting division. He can be contacted at:

perils, Aon Benfield, risk models, Steve Bowen, Impact Forecasting

Bermuda Re