Author Archives: Daniel Stander

About Daniel Stander

Managing Director, RMS
A Managing Director since 2012, Daniel currently has responsibility for driving content, innovation and replicable, strategic solutions across the entire RMS client base. He is also the Global Head of the RMS Public Sector Group, with overall leadership responsibility within RMS for relationships with its supranational, sovereign and local government clients. Over the last 15 years, Daniel has covered both government and corporate clients on every continent and in almost every sector, advising them across the full spectrum of RMS products on a variety of complex risks, from natural hazards, terrorism and pandemic to marine, supply chain and cyber. Prior to RMS, Daniel managed the group strategy and development function at BUPA, the 50,000 employee global health insurance specialist. He also has considerable start-up experience, having been a founding team member of an award-winning, P&C focused, SaaS company that was ultimately bought by Oracle. A frequent commentator on technology trends, Daniel has been published by Insurance Executive Technology, Risk & Insurance, The Institute of Economic Affairs and Middle East Insurance Review. He holds a double first from Oxford, studied for his MS at the Humboldt in Berlin and is a graduate of the Center of Creative Leadership.

Flood Risk, NFIP and the Role of Reinsurance

Shortly after its landfall, my colleague, Ben Brookes, and I drew attention in the RMS live Harvey updates to the fact that the storm was “not a wind event.” Like Sandy, flood losses, we wrote, would quickly overtake wind losses.

We recalled how Dr. Robert Muir-Wood had insisted back in February 2014 that “water is the new wind.” Those with exposure in harm’s way, he argued, needed to “get to grips with the details of modeling and managing hurricane-driven flood risk.”

It was unsurprising, then, to hear Robert on BBC World News last week describing Hurricane Harvey’s destruction as absolutely avoidable. Yes, Harvey is an extreme event. There were, however, historical precedents for stalling rain storms — and there are clear business cases for investing in resilience before extreme events, rather than just responding after.

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The Role of Catastrophe Risk Finance in Developing Nations

We all know that prevention is better than cure. Trouble is, sometimes you catch a cold. And if you’re already vulnerable, a relatively small infection presents a big risk – especially if you don’t have timely access to sufficient amounts of the necessary medicines.

Despite the best will in the world, nobody can stop the ground from shaking or the wind from blowing. Nobody can say that the worst-case scenario will never happen.

So, when Mother Nature strikes a vulnerable, low-income country, how bad will the ensuing humanitarian crisis likely be? What will it take financially to recover and rebuild? And is there a role for insurance along with donor aid?

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How to Accelerate the Understanding of Disaster Risk

RMS is delighted in playing an integral role at the United Nations’ Global Platform for Disaster Risk Reduction in Cancun next week.  This is the first time that government stakeholders from all 193 member countries have come together on this subject since the Sendai Framework for Disaster Risk Reduction was adopted in March 2015.  Cancun looks forward to welcoming some 5,000 participants.

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A Perennial Debate: Disaster Planning versus Disaster Response

In May we saw a historic first: the World Humanitarian Summit. Held in Istanbul, representatives of 177 states attended. One UN chief summarised its mission thus: “a once-in-a-generation opportunity to set in motion an ambitious and far-reaching agenda to change the way that we alleviate, and most importantly prevent, the suffering of the world’s most vulnerable people.”

And in that sentence we find one of the enduring tensions within the disaster field: between “prevention” and “alleviation.” Between on the one hand reducing disaster risk through resilience-building investments, and on the other reducing suffering and loss through emergency response.

But in a world of constrained political budgets, where should we concentrate our energies and resources: disaster risk reduction or disaster response?

How to Close the Resilience Gap

The Istanbul summit saw a new global network launched to engage business in crisis situations through “pre-positioning supplies, meeting humanitarian needs and providing resources, knowledge and expertise to disaster prevention.” It is, of course, prudent to have stockpiles of humanitarian supplies strategically placed.

But is the dialogue still too focused on response? Could we not have hoped to see a greater emphasis on driving the disaster-resilient behaviours and investments, which reduce the reliance on emergency response in the first place?

Politics & Priorities

“Cost-effectiveness” is a concept with which humanitarian aid and governmental agencies have struggled over many years. But when it comes to building resilience, it is in fact possible to cost-justify the best course of action. After all, the insurance industry, piqued by the dual surprise of Hurricane Andrew and then the Northridge earthquake, has been using stochastic models to quantify and reduce catastrophe risk since the mid-1990s.

Unfortunately risk/reward analyses are rarely straightforward in practice. This is less a failing of the models to accurately characterise complex phenomena, though that certainly is a challenge. It’s more a question of politics.

It is harder for any government to argue that spending scarce public funds on building resilience in advance of a possible disaster is money well spent. By contrast, when disaster strikes and human suffering is writ large across the media, then there is a pressing political imperative to intervene. As a result many agencies sadly allocate more funds to disaster response than to disaster prevention, even though the analytics mostly suggest the opposite would be more beneficial.

A New, Ambitious form of Public Private Partnership

But there are signs that across the different strata of government the mood is changing. The cities of San Francisco and Berkeley, for example, have begun to use catastrophe models to quantify the cost of inaction and thereby drive risk-reducing investments. For San Francisco the focus has been on protecting the city’s economic and social wealth from future sea level rise. In Berkeley, resilience models have been deployed to shore-up critical infrastructure against the threat of earthquakes.

In May, RMS held the first international workshop on how resilience analytics can be used to manage urban resilience. Attended by public officials from several continents the engagement in the topic was very high.

The role of resilience analytics to help design, implement, and measure resilience strategies was emphasized by Arnoldo Kramer, the first Chief Resilience Officer (CRO) of the largest city in the western hemisphere, Mexico City. The workshop discussion went further than just explaining how these models can be used to quantify the potential, risk-adjusted return on investment from resilience initiatives. The group stressed the role of resilience metrics in helping cities finance capital investments in new, protective infrastructure.

Stimulated by commitments under the Sendai Framework to work more closely with the private sector, lower income regions are also increasingly benefiting from such techniques – not just to inform disaster response, but also to finance the reduction of disaster risk in the first place. Indeed there are encouraging signs that these two different worlds are beginning to understand each other better. At the inaugural working group meeting of the Insurance Development Forum in Singapore last month there was a productive dialogue between the UN Development Programme and the risk transfer industry. It was clear that both sides wanted action, not just words.

Such initiatives can only serve to accelerate the incorporation of resilience analytics into existing disaster risk reduction programmes. This may be a once-in-a-generation opportunity to address the shameful gap between the economic costs of natural disasters and the fraction of those costs that are insured.

We cannot prevent natural disasters from happening. But neither can we continue to afford to spend billions of dollars picking up the pieces when they strike. I am hopeful that we will take this opportunity to bring resilience analytics into under-served societies, making them tougher, more resilient, so that when catastrophe strikes, the impact is lessened and societies can bounce back far more readily.

New Risks in Our Interconnected World

Heraclitus taught us more than 2,500 years ago that the only constant is change. And one of the biggest changes in our lifetime is that everything is interconnected. Today, global business is about networks of connections continents apart.

In the past, insurers were called on to protect discrete things: homes, buildings and belongings. While that’s still very much the case, globalization and the rise of the information economy means we are also being called upon to protect things like trading relationships, digital assets, and intellectual property.

Technological progress has led to a seismic change in how we do business. There are many factors driving this change: the rise of new powers like China and India, individual attitudes and even the climate. However, globalization and technology aren’t just symbiotic bedfellows; they are the factor stimulating the greatest change in our societies and economies.

The number, size, and types of networks are growing and will continue to do so. Understanding globalization and modeling interconnectedness is, in my opinion, the key challenge for the next era of risk modeling. I will discuss examples that merit particular attention in future blogs, including:

  • Marine risks: More than 90% of the world’s trade is carried by sea. Seaborne trade has quadrupled in my lifetime and shows no sign of relenting. To manage cargo, hull, and the related marine sublines well, the industry needs to better understand the architecture and the behavior of the global shipping network.
  • Corporate and Government risks: Corporations and public entities are increasingly exposed to networked risks: physical, virtual or in between. The global supply chain, for example, is vulnerable to shocks and disruptions. There are no local events anymore. What can corporations and government entities do to better understand the risks presented by their relationships with critical third parties? What can the insurance industry and the capital markets do to provide CBI coverage responsibly?
  • Cyber risks: This is an area where interconnectedness is crucial.  More of the world’s GDP is tied up in digital networks than in cargo. As Dr. Gordon Woo often says, the cyber threat is persistent and universal. There are a million cyber attacks every minute. How can insurers awash with capital deploy it more confidently to meet a strong demand for cyber coverage?

Globalization is real, extreme, and relentless. Until the Industrial Revolution, the pace of change was very slow. Sure, empires rose and fell. Yes, natural disasters redefined the terrain.

But until relatively recently, virtually all the world’s population worked in agriculture—and only a tiny fraction of the global population were rulers, religious leaders or merchants. So, while the world may actually be less globalized than we perceive it to be, it is undeniable that it is much flatter than it was.

As the world continues to evolve and the megacities in Asia modernize, the risk transfer market could grow tenfold. As emerging economies shift away from a reliance on a government backstops towards a culture of looking to private market solutions, the amount of risk transferred will increase significantly. The question for the insurance industry is whether it is ready to seize the opportunity.

The number, size, and types of networks are growing and will only continue to do so. Protecting this new interconnected world is our biggest challenge—and the biggest opportunity to lead.

Amlin on Open Modeling and Superior Underwriting

Daniel Stander (Managing Director, RMS) in conversation with JB Crozet (Head of Group Underwriting Modeling, Amlin).

Daniel Stander, RMS and JB Crozet, Amlin

Daniel Stander, RMS and JB Crozet, Amlin

Daniel Stander: Amlin has been an RMS client for many years. How involved do you feel you’ve been as RMS has designed, developed and prepares to launch RMS(one)?

JB Crozet: Amlin has been an RMS client for over a decade now. We are very committed to the RMS(one) Early Access Program and it’s been very rewarding to be close to RMS on what is obviously such an important initiative for them, and the market. We had liked what we heard and saw when RMS first explained their vision to us back in 2011. The RMS(one) capabilities sounded compelling and we wanted to understand these better, rather than build our own platform. We know how costly and risky those kinds of internal IT projects can be.

My team has now been trained on Beta 3 and feedback from those involved has been positive. We gave an overview of Beta 3 to all our underwriters and actuaries at our 4th Catastrophe Modeling Annual Briefing. There was a lot of energy and enthusiasm in the room. My team has now been trained on Beta 4 and we look forward to gathering feedback on their experience, and sharing this with RMS. We’re on a journey at Amlin and we’re on a journey with RMS. RMS(one) is the next phase of that journey.

DS: In what ways do you think Amlin will derive value from RMS(one)? Does it have the potential to pull your biggest lever of value creation; improving your loss ratio?

JBC: In a prolonged soft market, Amlin is rightly focused on controlling its loss ratio with disciplined underwriting. We think about RMS(one) in this context. With RMS(one), there is a real opportunity for superior performance through improved underwriting – both in the overall underwriting strategy and in individual underwriting decisions. This is equally true of our outwards risk transfer as it is of our net retained portfolio of risks.

It’s a big part of my role in the Group Underwriting function to equip our underwriters with the tools they need at the point of sale to empower their decision-making. The transformational speed and depth of the analytics coming out of RMS(one) will surface insights that result in superior, data-driven decision-making. The impact overtime of consistently making better decisions is not trivial.

DS: Transparency is key here: not just transparency of cost and performance, but transparency into the RMS reference view. How do you think about RMS(one) in this context?

JBC: RMS(one) takes the concept of transparency to a new level. RMS’ documentation has always been market leading. The ability to customize models by making adjustments to model assumptions – to drop in alternative rate sets, to scale losses, to adjust vulnerability functions – well, that gives us a far better understanding of the uncertainty inherent in these models. We can much more easily stress test the models’ assumptions and use the RMS reference view with greater intelligence.

RMS(one) is truly “open”. The fact that RMS(one) is architected to run non-RMS models – and that RMS has extended the hand of partnership to vendors of alternative views – is game-changing. The idea that Amlin could bring in auxiliary vended view of risk – from say, EQE – is today totally impractical given the operational challenges associated with such a change. RMS(one) removes these barriers and effectively gives us more freedom to work with other experts who might be able to help us hone our “house view” of risk.

DS: What is the attitude to the “cloud” in the market?

JBC: Once you understand that the RMS cloud is as secure and as reliable – if not more so – than existing data centre solutions, traditional concerns about the cloud become a non-issue. At Amlin we have high standards and we are confident that RMS can meet or exceed them.

It’s worth remembering, though, that the cloud is central to the value one can derive from RMS(one) and it’s not some optional extra – then you realize it’s not just “fit for purpose”, it’s actually what the industry needs.

RMS is giving us choices we’ve never had before. Whether it’s detailed flood models for central Europe and North America, or high definition pan-Asian models for tropical cyclone, rainfall and flood. Whether it’s the ability to scale up the compute resources on demand, or the ability to choose how fast we want model results based on a clear tariff. We wouldn’t be able to derive the broader value from RMS, if we worked with the hardware and software capabilities that our industry has been used to.