IAG boosts risk capabilities with RMS' New Zealand earthquake model

IAG boosts risk capabilities with RMS' New Zealand earthquake model | Insurance Business

IAG boosts risk capabilities with RMS

Insurance Australia Group (IAG) will be using the high definition New Zealand earthquake model by global risk modelling and analytics firm RMS to strengthen its risk management capabilities.

According to RMS, the model’s HD simulation-based framework simulates tens of thousands of realizations of future earthquake scenario losses. This will strengthen IAG’s ability to perform granular risk quantification as well as assisting in strategic risk management decisions.

Furthermore, the model holistically considers losses from multiple earthquake-related risks, such as ground shaking, liquefaction, landslide, tsunami, and fire following earthquake, as well as post-event loss amplification. It incorporates important lessons learned from the 2010-2011 Canterbury Earthquake Sequence (CES). It was created with input from local experts, scientific agencies, and insurers, and was validated against billions of dollars in CES claims data.

The Lyttelton Earthquake, in particular, caused wide-scale destruction, with building collapses in the Christchurch central business district, widespread liquefaction, and 185 fatalities. The CES resulted in an estimated $33-38 billion in overall insured losses, making it the second-largest insured loss from earthquake ever.

“Following the significant Canterbury and Kaikoura earthquakes, New Zealand now has one of the most technically advanced views of earthquake risk globally,” said Dr Philip Conway, natural peril specialist at IAG. “Multivariate models such as the RMS HD platform leverage this large body of science which supports IAG’s own internal modelling. IAG has had a long relationship with RMS and we welcome its independent view of risk which provides an important contribution to reinsurance discussions as well as satisfying regulatory requirements. The flexibility afforded by the new platform represents a step change in discrete consideration of earthquake mechanisms.”

“By including features like high-resolution liquefaction and probabilistic tsunami in our high definition New Zealand earthquake model, sophisticated clients like IAG, who understand the nuance required to optimize their risk management strategies, are better equipped with a holistic tool to meet their business needs,” said Dr Pierre Wiart, managing director of RMS Australia. “IAG’s selection of the RMS model allows them to better understand how earthquake risk in New Zealand could impact their diverse portfolio and demonstrates the value of this model for risk management in New Zealand.”