Author Archives: Hemant Shah

About Hemant Shah

Co-Founder and Chief Executive Officer, RMS
Since co-founding RMS in 1989 as a spin-out from Stanford University, Hemant Shah helped build RMS from five colleagues working from his apartment to more than 1,000 professionals providing the world's leading catastrophe modeling solutions to the global insurance and financial services sector. He is widely recognized within the global risk industry as a proactive and influential leader, and has been named “Most Admired CEO” (San Francisco Business Times, 2014); one of the "100 Most Powerful People in the Insurance Industry"(Insurance Newscast, 2005–2011); "Most Influential Person of the Year" (Reactions Global Awards, 2011); and one of the "Top 40 Most Influential" (Global Reinsurance, 2008), among other accolades. Hemant serves on the board of directors of the Casualty Actuarial Society and Praedicat, Inc., as well as on the board of overseers of St. John's School of Risk Management and Actuarial Science (College of Insurance). He is a Director of the RAND Center for the Study of Terrorism Risk Management Policy, a Director on the board of RAND's Institute for Civil Justice, and a Director of the Singapore-based Institute for Defense and Strategic Studies. Hemant is also a Henry Crown Fellow of the Aspen Institute, and part of the Aspen Global Leadership Network.

“Specialty Lines Are All About Opportunity”

When we started RMS almost 28 years ago, the Specialty and E&S markets were among the first to embrace the benefits of catastrophe modeling.   In many ways, I learned about (re)insurance at the knee of the specialty markets, which gave me an appreciation of the sophisticated and myriad ways this market provides coverage and underwrites business.   What struck me then, as it does today, is the entrepreneurial nature of the specialty lines.  Underwriter-driven and close to their markets, they are constantly boxing-on-their-toes to identify new opportunities to offer innovative coverage and to write profitable business.

Last week, during our annual client conference Exceedance 2017, I welcomed almost 900 participants across clients, partners, and our RMS experts and client teams.  During the three-day conference, we convened a Specialty Roundtable with a cross-section of our clients from the U.S. specialty lines market to discuss the priorities for this dynamic sector of the industry.

The discussion was lively and ran across several themes, from identifying new opportunities in today’s market, to the benefits of well-informed stakeholders, to competing on data in a market increasingly driven by agile, real-time analytics.

Here are some highlights from our discussions:

Baking A Bigger Pie

“Specialty lines are all about opportunity.” said one participant, and from the discussion it became clear that the protection gap isn’t just in emerging markets.  Even in the U.S., penetration and coverage for earthquake and flood risk is limited relative to the underlying exposures.  Another participant stressed the need to move beyond the status quo, stating “It’s not about competing in a zero-sum game; we need to expand the market.” But although it was recognized that the current market has its challenges, one participant remarked that “…within every market there is opportunity.”   We also discussed how new RMS models for earthquake and flood can help firms gain new insights to better identify and write quality business to expand the pie.

Educating the Market

Another imperative, one that came through loud and clear during the discussion, is the importance of a well-informed market.  Not just for the underwriters, but also upstream with the producers and buyers.   The group felt that there continues to be too much focus on using average annual loss (AAL) as the basis for placing individual accounts, with an insufficient understanding of the standard deviations, tail-correlations, and contributory metrics.  This is particularly the case for earthquake risk, which is the quintessential tail-risk peril.  With the April release of the updated RMS North America Earthquake Model, we’re giving clients a more complete view of the risk, with the ‘tails’ of the exceedance probability (EP) curve playing an even more important role than in the past.  We discussed steps RMS is taking to inform key stakeholders, and we will continue to do more to be proactive and educate the entire market.

The Analytic Enterprise

Analytic agility was a constant theme throughout our discussion, with one participant remarking “With analytics, you’re either on the bus, or off the bus.” It was agreed that there is no half-way measure to adopting analytics.  All participants emphasized the central role of the underwriter in the risk-decision process, applying their experience and judgement, supported by analytics to make sound decisions.  However, there was much discussion that underwriting, portfolio management and analytics need to be increasingly agile and more tightly coupled.  Statements such as “I need real-time,” were made and why critical up-to-date portfolio information is needed to be able to proactively manage their book.  The importance of dynamic insight was emphasized “…underwriting works in lock-step with the portfolio; you can’t look at one without the other, particularly in this market.”  And the need for empowering underwriters with analytics will only grow as “…you can never have enough data,” with the market now “more data-driven than ever.”

30 Mar 2017 - New Analytics Demo small

Having had hands-on access to the RMS(one) solutions in The Lab at Exceedance, several of the group were pleased to note its apparent benefits, from new exposure management and analytic applications to more flexible representations of contracts and financial structures.  “We’re seeing a lot of contracts that are getting more complex, and RMS(one) using CDL (contract definition language) will help.”

It was motivating for me to hear the excitement for our new data and analytics platform, with one member saying “after seeing RMS(one), I’m excited that I can be more innovative.”

Continuing to stay close to what is important for our clients and their markets is a strategic priority for RMS.  At a time of great change across the industry, agility is instrumental to mitigating risks and seizing new opportunities, and the specialty markets are at the forefront.

Reflections from Rendezvous: Innovation to Drive Growth in the Global (Re)Insurance Industry

Each year, the (re)insurance industry meets at the Rendezvous in Monte Carlo to discuss pressing issues facing the market. This year, my colleagues and I had lively discussions about the future of our industry, explored what’s top of mind for our clients and partners, and shared our own perspectives.


Source: The Fairmont Monte Carlo

Over the course of the week, a number of themes emerged.

The industry is at an inflection point, poised for growth

The (re)insurance industry is at an inflection point. While the existing market remains soft, there was a growing recognition at the Rendezvous that the real issue is innovation for growth. We heard time and again that too much of the world’s risk is uninsured, and that (re)insurers need strategies to expand coverage to catastrophic events. Not only in the developing world, but in established markets such as the U.S. and Europe.

Flood risk was of particular interest and discussion at the event. Against the backdrop of a changing climate and a growing concentration of exposures, flood losses nearly doubled in the 10 years from 2000 to 2009, compared to the decade prior. With better data and models, (re)insurers are growing confident they can underwrite, structure, and manage flood risks and provide solutions to meet growing global demand.

In many conversations we shared our thesis that the world’s exposures are evolving from assets@risk to systems@risk. Economic growth and activity is vulnerable to disruption in systems, and innovation, supported by models, data and analytics, is needed to provide new forms of coverage. Take cyber, for example. Insurers see significant opportunities for new forms of cyber risk coverage, but there are fundamental gaps in the industry’s understanding of the risk. When the market is better able to understand cyber risks and model and manage accumulations, cyber could really take off.

Alternative capital is no longer alternative

Amidst a general sense of stability—in part due to more acceptance of the “new normal” after falling prices and a number of mergers and acquisitions, and in part due to a very benign catastrophe risk market—there is a shifting dynamic between insurance-linked securities (ILS) and reinsurance. Alternative capital is now mainstream. In fact, one equity analyst called the use of third party capital a “fiduciary duty.”

Risk is opportunity

I was motivated by how many industry leaders see their market as primed for innovation-driven growth. This is not to overlook present day challenges, but to recognize that the industry can combine capital and know-how, increasingly informed by data analytics, to develop new solutions to expand coverage to an increasingly risky and interconnected world. As I recently wrote, risk is opportunity.

Working Toward a More Resilient Society in Partnership with Risky Business

 

Ever since my colleagues and I started RMS 25 years ago at Stanford University, we’ve been motivated to make the world a safer and more resilient place. This mission-driven approach has been our passion and a part of RMS culture since the beginning.

Over the years we have made numerous contributions in myriad ways. Today we announced an exciting partnership with the Risky Business initiative to work toward our shared goal of enabling the world to better understand and manage the risks associated with climate change.

Risky Business, a joint initiative of Bloomberg Philanthropies, the Office of Hank Paulson, and Next Generation, launched in October 2013 to quantify and publicize the economic risks that the United States faces as a result of climate change.

The initiative has two core components:

  • Assessing the economic risk of climate change in the United States
  • Engaging communities most at risk, to help community leaders prepare a measured response to the risks that they face

RMS is a Risky Business content partner, and our modelers and analysts are incorporating peer-reviewed climate change science into the RMS U.S. hurricane and coastal flooding models to quantify the economic risks associated with the uncertainties in climate change.

Our team, led by Dr. Paul Wilson, created an ensemble of stochastic event sets that reflect a range of possible sea level and oceanic conditions for each of the coming decades. The results of our work with Risky Business will be included in a report on the economic impacts of climate change in the United States later this year.

While there are uncertainties regarding the impact of climate change, the risks are real and can be quantified using the big compute technologies now at our fingertips and by systematically applying a scientific approach in addressing climate change issues. By objectively measuring this risk, we can—as a society—start to manage it.

I’m proud of the work my colleagues are doing every day to create models and software that enable key business sectors around the world to quantify and manage risk with the ultimate goal of increasing resiliency.

It is through work such as this that we live the mission of our company every day, as we strive to create a more resilient world. I look forward to updating you on our progress in coming months and sharing the results of our work with Risky Business.

In the meantime, if you want to find out more about the initiative and RMS’ involvement, check out this TIME magazine article.

Time for Blue Ocean Thinking

A big topic at the Rendezvous was “convergence.” Many in the market are concerned or are noting that the influx of new capital and capacity from the capital markets may be eroding pricing, discipline, and opportunities for traditional players. I have a somewhat orthogonal perspective, and I had a chance to engage in a number of thoughtful discussions on this topic with many of our clients during the course of the Rendezvous.

I believe it is confining to view the entry of new capital with a zero-sum mindset— that is, that more capacity from non-traditional sources means less opportunity for established firms. This is a classic “Red Ocean” perspective, one circumscribed by a view of a constrained set of opportunities. A strategist I admire greatly, C.K. Prahalad, wrote that it is not markets that are mature, but the mindset of management.

Here’s my take on the situation, and the opportunities it presents. Since I co-founded RMS, we’ve been a mission-driven firm. Our “big ideal” is that by providing models and software to help insurers and reinsurers manage risk, they can provide capacity to cover these risks with greater confidence. And by doing so, we and our clients can create more resilient and safer societies. Extending coverage not only enables those impacted by disasters to recover more rapidly, but it provides corporations and individuals the confidence to take risks and creates the market incentives to mitigate risk over time.

The influx of new capital may cause some disruptions in the status quo, but it also provides opportunities for innovation, for (re)insurers to extend coverage to under and uninsured regions and exposures in the world. By working together, the capital markets, coupled with the underwriting expertise of insurers and reinsurers, and the modeling expertise of firms like RMS, will be able to expand the market and make the world more resilient. Time for some Blue Ocean thinking.