Monthly Archives: May 2019

Impact Trek: How to Make Millions of Homes More Resilient

Just over a year ago, I was in Manila for a workshop on the design of PCDIP – the Philippines City Disaster Insurance Pool. Recognizing the Philippines as a country prone to earthquakes, typhoons and frequent flooding, as well as having a rapidly increasing economy, population and building stock, the design of PCDIP was funded by the Asian Development Bank and implemented by a consortium of consultants, led by RMS. The aim: to manage the risk that Philippine cities face from natural catastrophes through the use of parametric risk transfer, to give the cities a rapid source of funding when disaster strikes.

In March, I returned to Manila, alongside a team of both RMS colleagues and our clients on the annual RMS Impact Trek with Build Change – a longstanding RMS partner. RMS works closely with Build Change in promoting, and, crucially, implementing risk-reducing retrofit measures in low-income communities around the globe. This time, the focus of the trip was arguably less on risk transfer (as during my last visit to Manila), and more on risk reduction, because effective risk management must always be a combination of both – reduction and transfer.

Transferring risk from the first to the last dollar (or Philippine Peso…) is never efficient from a financial perspective; not to mention the non-financial benefits risk reduction measures can have on the lives and livelihoods of communities. At the same time, risk also cannot be fully “reduced away” – even after the most ambitious risk reduction measures some residual risk will always remain. And this is where risk transfer can provide vital protection, to ensure (or insure?) that adequate financial means are available in response to the most extreme catastrophe events.

During the Impact Trek, we spent a lot of time with the local Build Change team and some of their key partners – microfinance organizations, local and national government, and, most importantly, homeowners.

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Blue Chip Catastrophes

What do the 393 grounded Boeing 737 MAX aircraft have in common with BP’s “Deepwater Horizon” fire and uncontrolled oil release, or with Volkswagen’s (VW) “cheat technology” that ensured its diesel engine cars could pass stringent U.S. and European emissions test standards?

All three situations cost their respective companies tens of billions of dollars. Two of them concerned the development of in-house software that caused more self-inflicted damage to the company’s balance sheet than any corporate hit from an external cyberattack. And all three highlight defective risk management and regulation.

Volkswagen Group, BP and Boeing are all world class companies: ranked #18, #24 and #49 globally in the recently published Forbes Global 2000. For investors these are “blue chip” stocks: “… the stalwarts of industry – safe, stable, profitable and long-lasting companies, they represent safe, low volatility investments.” Investors might prefer to return to the original definition of “blue chip” in poker-playing, where it designates the highest value token but says nothing about the risk.

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EXPOSURE Magazine: Exploring the World of Risk Management

With the start of the U.S. wildfire season on the horizon, in the latest edition of EXPOSURE – the RMS magazine for risk management professionals, wildfire is our lead story, as we examine whether it now needs to be considered a peak peril. The 2017 and 2018 California wildfires have forced one of the biggest re-evaluations of a natural peril since Hurricane Andrew in 1992, as the industry begins to comprehend the potential loss severities.

The article argues that there are similarities with U.S. wildfire as there was with North Atlantic hurricane in 1992 – catastrophe models were relatively new and had not gained market-wide adoption, and many organizations were not systematically monitoring and limiting large accumulation exposure in high-risk areas. Find out why a rethink is required about how the risk management industry currently analyzes the exposure and the tools it uses.

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Cyber and the War Exclusion

In 1915, Cuthbert Heath – pioneer of catastrophe insurance at Lloyds of London, decided to offer insurance policies to cover the impacts of war, far from the front line. Zeppelin airships were arriving over London during World War One, dropping bombs and incendiary devices. Later in the War, the bombs were being thrown out of Gotha biplanes.

Heath did some simple calculations: the number of Zeppelins, the frequency of attacks, the number of bombs each airship could carry, the damage area of an explosion, and how much of London was built up compared to open spaces. Having generated a risk cost estimate, he then multiplied it by six to arrive at his proposed rate for the insurance coverage. As the intensity of air attacks went up and down so his insurance prices followed.

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Thank You for a Great Exceedance

It has been a momentous Exceedance here in Miami, with a raft of new product launches, excitement around transformation in our keynotes, a sea of new insight from across over sixty track sessions, and great camaraderie from the global risk community who took the time to join us here.

So much has happened, so time for a quick recap. Our opening keynote on Tuesday saw the unveiling of five new innovations. This included the launch of RMS Risk Intelligence™, an open and flexible platform built to enable better risk management and support profitable risk selection. RMS also introduced the Risk Data Object (RDO), a new open data standard.

We looked to the future on Wednesday, with keynotes from renowned disruptive innovation expert and futurist, Daniel Burrus, to answer the question – how can organizations survive and thrive in this age of transformation? Daniel offered a simple framework to help scan the disruptive environment, to ensure an organization is a disruptor, and not just disrupted. Robert Muir-Wood and Michael Steele from RMS examined the future of risk and risk management and suggested ten future risks that the industry needs to keep a watchful eye on.

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Exceedance: Get Ready to Embrace the Future

After a great birthday reception yesterday evening, with RMS celebrating thirty years in business, the time to look back had past, as the keynote sessions for day two at Exceedance were all about looking to the future. Opening the general session keynote, Karen White, chief executive officer, welcomed our guest speaker to the Exceedance stage, renowned disruptive innovation expert and futurist, Daniel Burrus. A New York Times best-selling author, Daniel’s most recent book is entitled “The Anticipatory Organization: Turn Disruption and Change into Opportunity and Advantage”.

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Exceedance: The Times They Are a Changin’

The opening keynote at Exceedance clearly set the agenda for this year’s conference – the future of risk. Karen White, chief executive officer for RMS, in her opening address, summarized the state of the risk management industry with one of her favorite songs – it just had to be David Bowie and “Changes”. But Karen asked what’s driving these changes, how do our clients see change, and how are they responding? Karen outlined how she had travelled the globe, (and clocked up hundreds of thousands of United MileagePlus points), talking to clients to get a clear-eyed view of what has changed and what to do about it.

Karen discovered that the catalysts for change had come from a wide range of sources, from how bad surprises are becoming, how new opportunities are motivating change, and how technology is changing approaches to risk. And it is a poignant time for RMS to look to the future of risk, as we celebrate and reflect on thirty years in business this year – and the birth of the nat cat modeling industry in 1989. Change has been constant in thirty years, but is now accelerating ahead, as Karen remarked that the next five years will define the future of risk.

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Welcome to Exceedance 2019

To everyone who is already here, or is en route to the Exceedance conference – joining us in Miami from around the world, a warm welcome awaits as the global risk management community meets once again.

There is such a buzz around Exceedance already, with a great deal of anticipation ahead of tomorrow’s keynotes – to get a first look at the latest new developments, and the kick off of our extensive track program, with seven tracks and some seventy sessions over three days. The stage is set for us to share our vision for this fast-changing industry – and how RMS can bring models, analytics, and data together to provide the risk insight that the market needs. Everyone is ready to go – including our Expert Bar team who will be on hand throughout the two main days of the conference to answer any questions that our delegates have.

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Version 18.1 Delivers Updated Views of North Atlantic Hurricane and Asia Earthquake Risk

With the release of version 18.1 on April 22 from RMS, there is plenty to explore, validate and put into production.

Updated Insights on North Atlantic Hurricane Risk

Starting with the RMS North Atlantic Hurricane (NAHU) Models, version 18.1 (v18.1) includes updates to the long-term and medium-term event rates throughout the Atlantic Basin, historical event reconstructions from recent seasons, and hazard and line-of-business specific vulnerability enhancements informed by new data and RMS building research.

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Wildfire: Managing a Peak Peril

A new wildfire season looms on the horizon across the United States, and as the last two years of huge wildfire insured losses and extensive devastation to lives and property clearly illustrates, wildfire is no longer an easily manageable loss for the (re)insurance industry – but a new peak peril.

So, what could be in store for the 2019 season? The industry is reeling from back-to-back seasons with losses over US$10 billion. This is unprecedented even during a period when average losses between 2011-2018 were at US$3.7 billion. And looking back, this is up 40x compared to 1964-1990, where losses were below US$100 million in today’s prices. What is changing with this peril, what are the risk drivers that we need to look out for?

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