Category Archives: Resilience

Shaping Insurance Portfolios to Manage High Risk from Natural Disasters

In its recent “Global Risks Report”, the World Economic Forum (WEF) provided a comprehensive analysis of the risks and threats that the world faces, from economic, environmental, to geopolitical. Now in its thirteenth report, each year it publishes tables of the top ten risks in terms of their likelihood of happening, and potential impact. Although “newer” risks such as cyberattacks and data fraud do feature in the top five in terms of likelihood, it is extreme weather events and natural disasters that are in the top two or three in each list. In fact, in the view of the WEF, only weapons of mass destruction are ahead of extreme weather and natural disasters in terms of their impact on the globe. Nat cat events have not always topped the table — maybe the scale of the events of 2017 have brought the impact of nat cats to the fore.

There is also a recognition from the WEF that the failure to adapt and mitigate to climate change is rising as a threat. The World Weather Attribution coalition of scientists stated that 19 trillion gallons of rainfall from Hurricane Harvey that hit the Houston area was three-times more likely to occur due to climate change, and 15 percent more intense.

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EXPOSURE Magazine: Essential Reading in Changing Times

The pace of change continues to accelerate across the insurance industry, whether it is from technology, regulation or market developments, and EXPOSURE magazine helps risk professionals to explore some of the key drivers of these changes.

In this latest edition available for distribution at the Monte Carlo Rendezvous and online, the lead story looks at the recent market activity from Tower Insurance in New Zealand. By adopting high-definition earthquake modeling, Tower gained the confidence to launch risk-based pricing for its customers, providing savings for the majority of policyholders, but increases for others. EXPOSURE looks at the implications of Tower’s actions and how this could affect the New Zealand insurance market.

High resolution modeling has also helped Flood Re in the U.K. to better understand how it can work towards its remit of delivering a flood insurance market based on risk-reflective pricing that is affordable to policyholders. EXPOSURE shows how innovative use of modeling could guide Flood Re when recommending investment measures to protect properties at risk of flooding.

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The Three “Protection Gaps” (And the Role of Protection Gap Analytics)

The rallying cry has sounded — to “close the protection gap”, the difference between what is paid out by insurance and the total cost of some incident or disaster. Here is an issue that can unite and promote the insurance industry, extending benefits to those in peril by expanding the insurance sector. Having ex-post access to funding after a loss, we know, can bring important benefits.

Yet in reality, there is not just one, but three distinct insurance “protection gaps”, each with separate causes and each requiring different remedies. These protection gaps are so different to one another that we should stop treating them as a single category. Lumping them together can cause confusion.

In this series of four blogs, I will explore each of these three distinct gaps, together with the role of protection gap analytics, and the actions we can plan to address these protection gaps.

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The Emerging Markets Protection Gap

This is the second blog in a series of four blogs examining three potential “protection gaps” and the importance of “protection gap analytics”. To read the first blog post in this series, click here.

Year-by-year, we can check to see if the gap between insured and economic disaster losses in emerging economies is starting to shrink. The gap remains resolutely stuck in the range 80 to 100 percent uninsured. Even a 90 percent average flatters the proportion, as coverage is concentrated in high value hotels, factories and central business districts whereas almost all ordinary houses are without insurance.

We should not be surprised how the emerging markets gap stays so wide.

See what happened in Japan. Unregulated mass rebuilding after the war led to a rising toll of flood disasters. In one single year in the 1950s, more than a million properties were flooded. Then in 1959 there was Typhoon Vera and the Ise Bay storm surge flood catastrophe in which more than 5,000 died. In 1960 the Government declared the level of risk to be intolerable and directed that seven to eight percent of government expenditure should be invested in funding disaster risk reduction. The annual investment proved successful and by the 1980s the annual number of houses flooded had reduced to only three percent of its 1950s level.

For any emerging economy the question can be asked: when did the nation reach the equivalent of Japan in 1960 and start to invest in disaster risk reduction. China passed the point of “intolerable disaster risk” towards the end of the 1990s, while India is undergoing that transition today. This is not just investment in physical disaster risk reduction, but also good risk governance and education.

Insurance is a product of this disaster risk management culture.

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Protection Gap Analytics: The Role of Risk Modeling

This is the final blog in a series of four blogs examining three potential “protection gaps” and the importance of “protection gap analytics”. To read the first blog post in this series, click here.

We are not going to be able to take effective action to reduce any of these three protection gaps unless we can first learn how to consistently measure the difference between insured and total loss. Such measurement means we can know the current situation as well as set appropriate targets and monitor progress in reducing the gap. It can also help to focus investment and action.

At present, the only form of measurement is to acknowledge the difference between insured loss and the estimated total economic loss once the claims have settled, one or two years after a significant disaster.

In the same way that probabilistic catastrophe risk models were developed to enable insurers and reinsurers to look beyond the latest event loss, so the same models are now required to monitor the protection gap. This is the focus of “protection gap analytics”.

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Resilience 2018: Driven by Purpose

There is nothing quite like a “banging EP” to make me feel young again. But that wasn’t the only aspect of my most recent trip to Miami that brought out the millennial in me.

If you missed Exceedance 2018 a few weeks back, you probably also missed Resilience 2018. Embedded every year within Exceedance, RMS holds a space for policymakers and business leaders to collaborate to a very important end: ensuring local communities and regional economies are resilient to the shocks and stresses they face.

Much has been written about how millennials seek work that is meaningful (Schullery, 2013); work which solidifies their self-efficacy (Chalofsky + Cavallaro, 2013). I also blog about the relationship between aims and actions; between purpose and profit.

And there’s some truth in the generational stereotypes. After all, research suggests that impact investing continues to “skyrocket.”

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EXPOSURE Magazine: Looking Back, Looking Forward

The latest edition of EXPOSURE is essential reading for risk professionals, as we look back at what can be learned from last year’s events and look forward to the future including new challenges faced by the global risk management community and new opportunities to capitalize on.

EXPOSURE offers a unique perspective with a clear mission “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And with a new North Atlantic hurricane season nearly upon us, and memories of HIM (Hurricane Harvey, Irma and Maria) fresh in the industry’s collective consciousness, EXPOSURE talks to the industry and paints a picture of a mature, responsible insurance sector that managed HIM with certainty and confidence. Cyber has also demonstrated its potential as a global systemic risk, and EXPOSURE looks at how events such as an outage of a major cloud services provider could generate economic losses as high as Superstorm Sandy.

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Exceedance: Time to Make Risk More Transparent

As the sun shone over the Biscayne Bay at the start of the second full day at Exceedance, our keynote guest speaker, Jeff Goodell, energy and environmental expert, investigative journalist and author of numerous books including The Water Will Come asked a provocative question in his opening slide. It simply said, “Goodbye Miami?”

Jeff said that he was at home being in the company of fellow “catastrophists” and the risk management community at Exceedance, but this is not always the case. When talking about climate change and sea-level rise, he sometimes felt as if he was Richard Dreyfuss in the movie Jaws. Dreyfuss played oceanographer Matt Hooper, a character who continually warned the Mayor of Amity Island to close the beach because of the risk of shark attacks. The Mayor ignored the advice, due to the economic impact of closing the beach … but [spoiler alert] the shark kept coming. Jeff remarked that sea-level rise is the shark, and it’s bigger and more dangerous than we first anticipated.

Jeff Goodell presenting at Exceedance

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Exceedance: Client-focused Transformation

The first full day of Exceedance clearly set the direction that RMS is taking towards transformation — as a strategic partner helping clients to succeed in a time of rapid change. Karen White, chief executive officer for RMS, made her keynote debut on the Exceedance stage, sharing her background working with technology companies during similar game-changing times, and expressing her excitement of the here and know and what lies ahead.

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The Happy Face of Retrofitting

Corina Sutter is Director, Government and Regulatory Affairs at RMS, and is based in London. She joined fellow employees from RMS and RMS clients on our annual Impact Trek in Nepal during March this year. This is Corina’s account of her time in Nepal.

When you think about strengthening a building to make it more resilient to seismic events, does “retrofitting” come top of mind? And if you have heard of retrofitting, do you know why it is more cost-effective, and in many instances more suitable than simply rebuilding? This awareness challenge is what Build Change faces in Nepal; with regards to retrofitting not everyone is aware or convinced — yet.

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