2017 happened! Let’s do some catastrophe stress testing

2017 happened! Let’s do some catastrophe stress testing | Insurance Business America

2017 happened! Let’s do some catastrophe stress testing
It has been a difficult few months for the insurance industry. Third quarter results are rolling in and lots of companies are reporting the same thing – US natural catastrophes have hit us hard!

2017 will be remembered for Hurricane Harvey and the intense flooding it caused in Texas, followed closely by hurricanes Irma and Maria battering the Caribbean. Add to that a devastating earthquake in Mexico and raging wildfires in California … all in the space of a few months.

Flood insurance and flood modelling have been top of mind insurance issues for some time. Urgency around the flood issue really hiked up a notch when the impact of Harvey became clear. It was the subject of an event hosted by ArgoGlobal and Lloyd’s of London, where comparisons were made between four leading flood risk modelling vendors: AIR, KatRisk, Impact Forecasting and CoreLogic. 

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“We are experiencing one of the most active hurricane seasons this century,” said David Clouston, head of Lloyd’s risk aggregation. “Widespread flooding as a result of windstorms Harvey and Irma has once again highlighted the costs of natural catastrophes – both in terms of human suffering and economic hardship. The need for a deeper understanding of inland flood modelling is more important than ever.”

The event was hosted by Federico Waisman, senior vice president and head of analytics at Ariel Re. Waisman created a data set that was run through each flood risk model using the same input and model options. He then presented a comparison of results (which were quite variable at times) and allowed the vendors to explain their results.

“This is a significant milestone for the modelling of inland flood in the US, and could not be more timely. We have witnessed time and again the devastation wrought by flooding. The models presented at this event will enable the insurance industry to better underwrite this risk,” he said.

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“The potential for growth in this area is clear. With the benefit of more robust analytics the US flood market could represent an area of significant potential for (re)insurers. This event will enable the market to witness how these relatively new models perform, and gain valuable insights into their respective processes.”

Flood risk modelling undoubtedly has value, but calculations are still enormously variable, as shown by some of the comparisons made at the ArgoGlobal event. The flood risk modelling market is still at its beginning and there are still uncertainties that need to be unraveled, said Siamak Daneshvaran, head of research and development at Aon Benfield Impact Forecasting.

All four vendors at the event agreed wholeheartedly on one thing – there’s a great opportunity to delve into new data and use flood modelling to truly analyze risk.

“None of these are out-of-the-box models,” commented Stefan Eppert, chief technology officer and co-founder of KatRisk. “I advise companies to take the time to delve into risk model results and figure out how the data relates to your books and the best way to use it to come up with a [way to mitigate] that risk.”

Laurel Di Silvestro, senior product manager at CoreLogic added: “2017 happened! So we have an opportunity to do some real stress testing. My advice would be to [collect your data] get the flood maps and really start delving into some of these models.”   

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