The Global Flood Challenge: Coverage, Complexity, and Precision
Whether you are a global (re)insurer or a local primary insurer, building a profitable book of flood business can be challenging. To develop more effective flood risk management strategies or expand coverage in new markets, businesses must understand and quantify what drives flood risk.
What needs to be considered?
First, recognize the structure of flood insurance products. They are tailored to specific markets and dependent on the type of flooding, whether river flooding, surface water flooding, or storm surge. Risk selection, underwriting, and portfolio management decisions need to be built on a complete and robust view of risk considering these dependencies.
Second, flood catastrophe risk models have been instrumental in increasing reinsurers’ confidence in underwriting portfolios of flood risk, which has provided more capacity to the market. This has created opportunities to expand coverage, but at the same time it has increased the level of scrutiny required to adequately price and structure respective (global) programs.
Third, with the likelihood of flood risk being influenced by climate change, whether it is sea level rise or intense rainfall, more complex questions need to be addressed around present-day and future risks to portfolios and asset classes.
To tackle these business challenges, one must recognize:
- Flood risk is complex to model: Floods can develop from multiple types of weather systems that can persist over a period of days or weeks, with localized to widespread impacts across borders. It is also the one peril where risk mitigation is the most prominent, impacting the loss potential. Capturing all spatial and temporal correlations and building robust views of risk with converging tail losses requires a simulation-based modeling approach and large stochastic event sets.
- Flood risk is highly localized: Flood risk is a high-gradient peril, where the risk for one building can differ greatly from its neighbor. Each market also differs in how flood policies are written. As such, flood models need to be rooted in best-available local data and robust science to accurately represent hazard at high resolution, including flood mitigation efforts. It should also be based on regional vulnerability that reflects local building standards and unique building characteristics. This requires local market intelligence and significant collaboration with local agencies and partners.
- Flood risk is global: Floods occur nearly everywhere around the world. Likewise, flood portfolios are not constrained geographically. Global (re)insurers are often faced with the choice of using multiple disparate flood solutions with different risk frameworks or, in the absence of models, developing in-house solutions to quantify flood risk. (Re)insurers also need flood solutions that both address the requirements of mature markets and tackle emerging markets and cases where exposure data quality is poor.
The RMS® vision for a global flood solution has been shaped by the fundamental desire to provide modeling insight to support our clients’ needs, in recognition of how they write their flood business. This ranges from markets where flood is included as a separate coverage or where flood is priced as part of wind or “all-perils” policies. Clients need to have oversight of the portfolios across the countries they operate in, right through to analysis of an individual location. And, to manage a global peril, you need a solution that is scalable, distributed, and robust, so decision-makers can go from a single query to managing an entire global portfolio.
The launch of RMS Global Flood Solution Suite supports that vision. We have been helping clients understand flood risk for many years, with our existing, extensive suite of respected models for inland flood and associated perils. Now, our major addition is new models for Asia-Pacific and risk maps for all countries experiencing flood risk. And it’s all available on our cloud-based risk analytics platform, Risk Intelligence™. We are confident that RMS global flood solutions will allow clients to achieve their objectives and help with their ambitious plans for insuring flood risk and tackling the protection gap.
A New Approach to Global Flood Risk: The RMS Global Flood Solution Suite
RMS is launching new models for markets in China, New Zealand, and Southeast Asia (Thailand, Singapore, Malaysia, and Indonesia) to complement our existing suite of flood models for Europe, the U.S., India, Japan, and the Philippines. Many of these models use our award-winning high-definition flood risk framework.
Clients can now confidently select better risks for 80 percent of global property gross written premium (GWP) using fully probabilistic models that include robust event sets validated by extensive local loss data. For flood risk outside of these markets, RMS is launching a new innovative set of Global Flood Maps. Combined, the RMS Global Flood Solution Suite offers high-resolution flood model coverage that is unmatched in the industry. Together with the models and maps, the suite of RMS flood products offers solutions for 100 percent of global property GWP.
Managing such a wealth of data – models, maps, and data for flood and related perils, and analyzing risk across multiple countries and multiple perils, requires a unified software solution. All RMS flood solutions are available Risk Intelligence™, our open, modular, and unified platform for risk insights.
Applications such as Risk Modeler and ExposureIQ on Risk Intelligence are designed to answer your questions and aid decision-making. And you benefit from a cloud-first SaaS architecture – a secure, compliant, highly scalable and highly-performant environment to maximize modeling productivity – to deliver the insights that power the insurance value chain. This combination of using flood models, maps and data on Risk Intelligence allows you to:
- Manage the complexity: Probabilistic, high-definition modeling that considers the huge range of spatial and temporal factors, powered by Risk Intelligence, allows you to quickly analyze risk at the location level for granular risk selection.
- Manage a global portfolio: Run models flexibly to suit your view of risk – for multiple countries and to group correlated perils (such as tropical cyclones) or non-correlated perils (such as earthquakes).
- Manage market maturity: RMS flood models are optimized for use with aggregate or detailed exposure data. Global flood maps allow you to explore use cases outside of core business.
- Manage your workflow: Run models up to 12 times faster on Risk Intelligence, compared to on-premises infrastructure, and quickly flow data to underwriting systems via APIs. Flexibly scale to suit your business, without manual work-arounds or capacity worries.
RMS is your partner to understand flood risk, no matter what stage your business is currently at. Our consulting teams, and RMS Analytical Services can give you rapid access to flood model insight, analyze exposure, and scope markets and growth opportunities. RMS data, flowed straight into your systems, gives you the ability to make informed risk selection decisions at the point of underwriting.
Coupling advanced modeling with a cloud platform designed to deliver faster and more advanced analytics at a better total cost of ownership, RMS brings the market a global flood solution to power risk decision chains globally.
Find out more about the RMS Global Flood Solution Suite.