Tag Archives: Risk Management

EXPOSURE Magazine Snapshots: Evolution of the Insurer DNA

This is a taster of an article published in the second edition of EXPOSURE magazine.  Click here and download your full copy now.

6 Apr 2017 - Evolution of Insurer DNA blog image banner 720 x 168Many in (re)insurance recognize that the industry is at a tipping point. Rapid technological change, disruption through new, more efficient forms of capital, and an evolving risk landscape are challenging industry incumbents like never before. EXPOSURE magazine reported that inevitably the winners will be those who find ways to harmonize analytics, technology, industry innovation, and modeling.

“Disruptive innovation” is increasingly obvious in areas such as personal lines insurance, with disintermediation, the rise of aggregator websites and the Internet of Things (IoT).  In the commercial insurance and reinsurance space, disruptive technological change has been less obvious, but behind the scenes the industry is undergoing some fundamental changes.

The tipping point, the “Uber” moment has yet to arrive in reinsurance, according to Michael Steel, global head of solutions at RMS. “­The change we’re seeing in the industry is constant. We’re seeing disruption throughout the entire insurance journey. It’s not the case that the industry is suffering from a short-term correction and then the market will go back to the way it has done business previously. ­ The industry is under huge competitive pressures and the change we’re seeing is permanent and it will be continuous over time.”

While it is impossible to predict exactly how the industry will evolve going forward, it is evident that tomorrow’s leading (re)insurance companies will share certain attributes. ­ This includes a strong appetite to harness data and invest in new technology and analytics capabilities, the drive to differentiate and design new products and services, and the ability to collaborate. According to Eric Yau, general manager of software at RMS, the goal of an analytic-driven organization is to leverage the right technologies to bring data, workflow and business analytics together to continuously drive more informed, timely and collaborative decision making across the enterprise.

“New technologies play a key role and while there are many choices with the rise of insurtech firms, history shows us that success is achieved only when the proper due diligence is done to really understand and assess how these technologies enable the longer-term business strategy, goals and objectives.” says Yau. Yau also believes that one of the most important ingredients to success is the ability to effectively blend the right team of technologists, data scientists and domain experts who can work together to understand and deliver upon these key objectives.

Looking for Success in this New World

Which factors will help companies stand out and compete in the future?  EXPOSURE asked industry experts for their views on the attributes that winning companies will share:

The Race for Millennial Talent:  The most successful companies will look to attract and retain the best talent, says Rupert Swallow, co-founder and CEO of Capsicum Re, with succession planning that puts a strong emphasis on bringing Millennials up through the ranks. “­There is a huge difference between the way Millennials look at the workplace and live their lives, versus industry professionals born in the 1960s or 1970s — the two generations are completely different,” says Swallow. “­ Those guys [Millennials] would no sooner write a check to pay for something than fly to the moon.”

Collaboration is the Key: There are numerous examples of tie-ups between (re)insurance industry incumbents and tech firms, to leverage technology – or insurtech – expertise, to get closer to the original risk. ­ One example of a strategic collaboration is MGA Attune, set up last year by AIG, Hamilton Insurance Group, and affiliates of Two Sigma Investments. ­ Through the partnership, AIG gained access to Two Sigma’s vast technology and data-science capabilities to grow its market share in the U.S. small to mid-sized commercial insurance space.

Blockchain:  Blockchain offers huge potential to reduce some of the significant administrative burdens in the industry, thinks Kurt Karl, chief economist at Swiss Re. “Blockchain for the reinsurance space is an efficiency tool. And if we all get more efficient, you are able to increase insurability because your prices come down, and you can have more affordable reinsurance and therefore more affordable insurance. So I think we all win if it’s a cost saving for the industry.”

“­The challenge for the industry is to remain relevant to our customers,” says RMS’ Michael Steel. “­Those that fail to adapt will get left behind. To succeed you’re going to need greater information about the underlying risk, the ability to package the risk in a different way, to select the appropriate risks, differentiate more, and construct better portfolios.”

For the full article and more insight for the insurance industry, click here and download your full copy of EXPOSURE magazine now.

Watch Video: Eric Yau – Managing Risk is an Interconnected Process

Eric Yau, general manager, software business unit at RMS, said those managing risk should keep in mind that risk selection is part of an overall process that affects capacity and portfolio strategy. Yau spoke with A.M. BestTV at the Exceedance 2017 conference.

For more information on RMS(one)®, a big data and analytics platform built from the ground-up for the insurance industry, and solutions such as Risk Modeler and Exposure Manager, please click here.

EXPOSURE Magazine Snapshots: The Analytics Driven Organization

This is a taster of an article published in the second edition of EXPOSURE magazine.  Click here and download your full copy now.5 Apr 2017 - Exposure Analytics Org image with Exposure masthead

Farhana Alarakhiya, vice president, products at RMS, writes… In my recent article in EXPOSURE magazine, I was interested in exploring how firms in the insurance sector can move towards building a more analytics-driven organization.  Being analytics-driven translates to being an agile business, and in a turbulent market landscape, building underwriting agility is becoming critical to business survival.

There is no doubt we have seen revolutionary technological advances and an explosion of new digital data sources, which has reinvented the core disciplines of insurers over the past 15 years.  Many (re)insurers also see big data and analytics (BD&A) as a “silver bullet” to provide competitive advantage and address their current market challenges.

Similar to other industries who continue to invest heavily in BD&A to secure their position and open a new chapter of growth, the insurance sector is also ramping up investment, in open BD&A platforms such as RMS(one)®, which is purpose-built for the insurance industry.  But although there is a real buzz around BD&A, what may be lacking is a big data strategy specifically for evolving pricing, underwriting and risk selection, areas which provide huge potential gains for firms.

With the opportunity for our industry to gain transformational agility in analytics now within reach, we need to be conscious of how to avoid DRIP, being data rich, but information poor, with too much focus being on data capture, management, and structures, at the expense of creating useable insights that can be fed to the people at the point of impact.  Regulation is not the barrier to success either, many other regulated business areas have transformed their business and gained agility through effective analytics.

Please read the full article in EXPOSURE magazine to discover more about the three main lessons insurers can learn from other businesses who have their BD&A recipe just right, but here’s a short summary:

Lesson #1 – Delivering Analytics to the Point of Impact

Being reliant on back office processes for analytics is common for insurers, but doesn’t work for a frontline healthcare worker, for example.  Data analysts are rare in this sector, because a healthcare worker has analytics designed around their role, to support their delivery.  If you look at a portfolio manager in the insurance sector, they typically work in tandem with an analyst to get relevant data, let alone insight, which compromises their ability to perform effectively.

Lesson #2 – Ensuring Usability

Recognizing the workflow of an analytics user and giving due consideration to the veracity of the data provided to reduce uncertainty is vital. Looking at our healthcare example, analytics tools used by doctors to diagnose a patient’s condition use standardized information – age, sex, weight, height, ethnicity, address – and the patient’s symptoms.

They are provided not with a defined prognosis but a set of potential diagnoses accompanied by a probability score and the sources. Imagine this level of analytical capability provided in real-time at the point of underwriting, where the underwriter not only has access to the right set of analytics, they also have a clear understanding of other options and underlying assumptions.

Lesson #3 – Integration into the Common Workflow

To achieve data nirvana, BD&A output needs to integrate naturally into daily business-as-usual operations. When analytics are embedded directly into the daily workflow, there is a far higher success rate of it being put to effective use.  With customer service technology, all the required systems are directly integrated into the customer agents’ software for a holistic view of the customer.  Using platforms built and designed with open architecture allows legacy systems or your specific intellectual property-intensive processes to be integrated, for access to analytics that allow them to derive insights as part of the daily workflow for every risk they write.

This is a taster of an article published in the second edition of EXPOSURE magazine.  Click here and download your full copy now.

Watch Video: Farhana Alarakhiya – The Data Challenge Is Getting It to the Right People

Farhana Alarakhiya, vice president, products at RMS, said insurers are responding to the allure of big data, but must focus on turning voluminous data into meaningful insights. Alarakhiya spoke with A.M. BestTV at the Exceedance 2017 conference.

For more information of RMS(one)®, a big data and analytics platform built from the ground-up for the insurance industry, and solutions such as Risk Modeler and Exposure Manager, please click here.

“Computers Do the Calculating to Allow People to Transform the World.”

The quote above is from Conrad Wolfram, the renowned British mathematician, well known as an advocate for the advancement of mathematics teaching.  He argues that teaching students how to calculate using computers is more effective and more liberating than teaching calculation by hand. In his talk at TEDGlobal 2010, he describes his four-step process to solve a math problem:

  1. Pose the right question
  2. Formulize the question
  3. Computation
  4. Verifying that the computation answered the question

Currently, Wolfram believes 80 percent of math education focuses on step three – computation – and teaching people how to compute by hand.  Instead, he proposes “…we ought to use computers to do step three, so students can spend much more effort on learning how to do steps one, two and four – conceptualizing problems, applying them.”

The proper development and utilization of modern computer systems, including hardware and software advances, should enable Wolfram’s vision to come true, with users moving their allocated time away from calculations and process – stage three issues – and moving it to conceptualizing problems and applying the solutions effectively. And through my recent hands-on experience, I am confident that Risk Modeler, powered by RMS(one)®, will truly allow risk analysts to modify that time allocation.  I shared my experience of Risk Modeler on the keynote stage at Exceedance, and I invite you to watch the video below.

4 Apr 2017 Blog - Josh-ellingson-video-image

 

 

 

 

 

 

 

 

In 1999, a Legend Was Born

Many of you reading this may not realize it, but RiskLink® celebrates its 18th birthday this September.  RiskLink was born in 1999, and for some of you, RiskLink started its cat modeling career before you did.  I can remember using RiskLink back then, and it is a testament to the quality of that product that it is still the predominant catastrophe modeling software.  I’ve grown up with it, many of us have, and with that kind of longevity and familiarity, it is no wonder that few people even consider or question what can be an elongated process involved in completing an analysis, using this bedrock of catastrophe management.

That process to access your analysis is a lot of work. File management, model profile management, financial perspective re-maps, system restrictions. Wolfram’s assumption looks reasonable, that up to 80 percent of your natural catastrophe modeling time is spent in this process.

We’ll celebrate 18 successful years of RiskLink, but the market is shifting to an embrace of big data analytics.  This creates great timing for Risk Modeler. Risk Modeler is built specifically to work with large amounts of data to remove the procedural, tactical component of your work and move it to an efficient and speedy system.

How Would You Use Your Process Time?

This reallocation of process allows you to spend more time using your experience and intuition to conceptualize, understand and guide your business more effectively.  You can start to ask and answer questions that anticipate the business’ needs.  You can spend more time proactively working on change management with your key stakeholders. You can work more directly with the underwriting teams to understand and differentiate risks more thoroughly.

Risk Modeler is an efficient interface between your insight and experience and the analytical power of cloud-based computing. It allows you to simply ask a question, and it delivers the answer.   Mr. Wolfram reminds us that, “…math is not equal to calculating. Math is a much broader subject than calculating…I think of calculating, in a sense, as the machinery of math. It’s the chore. It’s the thing you’d like to avoid if you can, like to get a machine to do.”

Modeling is more than process, which is the chore of risk modeling.  I am excited that Risk Modeler is that system capable of completing that chore for you. You can now unleash your energy, creativity, insight, and experience on improving your company, your industry and to help make the world more resilient.

For more information on RMS(one), a big data and analytics platform built from the ground-up for the insurance industry, and solutions such as Risk Modeler and Exposure Manager, please click here.

“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.

Day Four at Exceedance 2017

Thursday in New Orleans, and there was still much to see and learn on the final morning of Exceedance.

Attendees were taking advantage of all there was to offer in The Lab, including connecting with RMS experts for product demonstrations and training for the latest Version 17 and Risk Modeler developments.

23 Mar 2017 EXCD Emily P smaller

As mentioned in yesterday’s blog, attendance has been exceptional at Exceedance, and some track sessions have been so popular that Thursday’s agenda was updated to repeat the High Definition Modeling capabilities, Version 17 RMS® North America Earthquake and RMS® North Atlantic Hurricane Model Changes, RMS(one)® solutions, RMS roadmap and future solutions, and U.S. Flood Market tracks.

A Personal Message from Hemant

The RMS Exceedance Party (EP) Was the Place to Be!

Those who attended the EP Wednesday night at Generations Hall were treated to quite a party! Along with three separate spaces – each with its own New Orleans theme – many grooved to the music of Rockin’ Dopsie, Jr. and the Zydeco Twisters.

23 Mar 2017 EXCD EP party singer small

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Dopsie (or perhaps it’s “Mr. Rockin’”) had the dance floor alive with revelers moving to the beat of local zydeco as well as hits from the past. The night was capped off with Café Du Monde serving their world-famous beignets.

A Final Note on Exceedance 2017

As Exceedance 2017 comes to a successful conclusion, all of us here at RMS want to thank those who came from around the globe to be in attendance.

This was truly “your” conference, and we hope you found value in listening to our keynote speakers on the big stage, as well as learning more about our exciting updates and new solutions that will enable you to own your view of risk, provide the flexibility you need to make decisions, operate more cost-effectively, and create resilience.

As we move beyond this year’s Exceedance, RMS is ready to meet its commitments as we remain on track for a full schedule of delivery throughout 2017!

Day Two from Exceedance 2017

Tuesday dawned bright and sunny in New Orleans as Exceedance got underway.

More than 900 attendees joined Hemant and eight keynote speakers during the Exceedance General Session. Attendees learned how RMS continues to deliver on its client commitments with the launches of significant capabilities ranging from Version 17, including the new Version 17 RMS® North America Earthquake Model, Version 17 RMS® North Atlantic Hurricane Model, and Risk Modeler powered by RMS(one)®.

In addition to Hemant, Larry Orecklin from Microsoft took to the stage along with Emily Patterson, Mark Powell, Chris Folkman, Emily Grover-Kopek, Josh Ellingson, Ryan Ogaard and Eric Yau.

Tuesday Highlights

“Exceedance is a key part of our continuing dialogue with clients around their needs and priorities, discussing how we can better align to help meet their business goals.”

Hemant Shah, co-founder and CEO of RMS

Hemant demonstrated the superiority of the Version 17 North America Earthquake (NAEQ) Model through a personal anecdote. As you’d expect, Hemant ran the data on his own house through the model and found that his risk is down 27 percent on an expected loss with risk load factor. #lowerhemantspremium

Eric Yau announced that Risk Modeler, powered by RMS(one), will be ready for general availability in April, and described our continued commitment to RiskLink® as a standalone product, as well as being an integral part of the RMS(one) platform.

Josh Ellingson described how Risk Modeler will empower analysts to spend more time understanding the drivers of risk and applying their creativity to expand their book business by collapsing the manual processing of their modeling workflow.

Build Change

The Lab is Where It’s At!

With The Lab in full swing, attendees took advantage of the opportunity to engage directly with RMS experts – getting up-close insights and training on the RMS(one) platform, Version 17 North Atlantic Hurricane Model and North America Earthquake Model, and much more. It’s truly where the action is!

The Mini Theater

Not to be outdone by The Lab, the Mini Theater on Tuesday played host to three insightful and engaging presentations focused on building resilience in an ever-changing world. Topics included Enhancing Urban Resilience: Managing Risk to Critical Infrastructure; Stories from the Field: Nepal Impact Trek with Build Change, and Road to Coastal Habitats in Managing Natural Hazards.

Monday RMS Welcome Reception a Hit

Last night’s RMS Welcome Reception was a hit – and not just because of the live jazz music. The well attended two-hour welcome event included plenty of mingling, great discussions, and delicious bites.

Put on Your Mask and Come to the Party!

For those of you in attendance at Exceedance, join us in The Lab from 6:00 to 8:00 p.m. to celebrate our special New Orleans-themed masquerade (no costumes required, but masks will be provided). It will be a fun evening where you can engage with RMS leaders, scientists, and strategists as they reveal the latest RMS solutions.

Check back tomorrow for more highlights from Exceedance 2017!

 

Day One from New Orleans – Exceedance Is Under Way!

New Orleans is known for its unique cuisine (crawfish, anyone??), cool music (the birthplace of jazz), Mardi Gras (party!!) – and for the better part of this week – Exceedance 2017.

Exceedance 2017

 

 

 

 

 

 

 

 

 

Yes, Exceedance is finally here, and we’re looking forward to an exciting line up of informative sessions, up-close training, engaging speakers, and networking opportunities. For those of you who can’t join us at Exceedance this year, look for highlights on Twitter and here on the blog, as we publish throughout the event.

Welcome Reception

Get set to mingle tonight at the RMS Welcome Reception, from 6:00 to 8:00 p.m. in Vitascope and the 8 Block Bar at the Hyatt Regency. It’s the perfect venue to enjoy savory hors d’oeuvres, catch up with friends, colleagues, and RMS staff members, and soak up some authentic jazz.

Ready, Set, Go!

RMS has listened and worked closely with our clients to innovate the type of solutions that support their strategic business needs.  In 2017, we’re delivering on these commitments with a significant set of capabilities ranging from Version 17 (including highlights such as the RMS® North Atlantic Earthquake model and the RMS® North America Hurricane Model), to Risk Modeler.

Over the course of the next three days you’ll be able to choose from 105 sessions across 23 different tracks, three General Sessions, The Lab and Mini Theater with up close training that only Exceedance can offer. Exceedance is where the latest modeling, analytics, and technology all come together!

Don’t forget, you can check on events, tailor your schedule, review session times, set up meetings – all with the Exceedance 2017 Mobile App. If you haven’t downloaded it, go to your app store and search for “Exceedance”.

We’ll keep you posted via this blog on each day’s highlights, so check back. And welcome to Exceedance!

A Few Words About Exceedance Before You Go

If you are joining us in New Orleans for Exceedance 2017 in just a few days from now, I wanted to send a quick reminder of all there is to see and do, starting Monday with our pre-conference activities.

Get Ready for 22 Tracks, 105 Sessions, The Lab, Keynote Speakers, and Hands-on Training Opportunities

The Exceedance agenda reflects our commitment to deliver value to clients in a rapidly changing market, including new solutions to increase operational effectiveness, agility, resilience, and business growth.

You’ll have many opportunities to dive deep into more than 20 new models, including the RMS® North America Earthquake Model and the RMS® North Atlantic Hurricane Model, major advances in science, software, and HD-simulation models, The Lab, and more.

For information on the keynote speakers, tracks and sessions, and The Lab, visit the conference website exceedance.rms.com.

French Quarter New Orleans

All Work and No Play? Not at Exceedance!

Along with experiencing all there is to discover and learn at Exceedance, there are plenty of opportunities to relax and have some fun with the following pre-conference and evening activities:

  • RMS Welcome Reception: Get set to party as Exceedance kicks off in style with a jazz-flavored welcome reception on Monday evening.
  • Evening Reception in The Lab: Tuesday night offers a festive celebration of New Orleans’ tradition with a colorful masquerade party (masks provided) – in The Lab. You’ll also have a chance to engage with RMS leaders, scientists, and strategists as they reveal the latest RMS solutions.
  • Exceedance Party (EP) “A Taste of New Orleans”: Evening festivities conclude on Wednesday with “A Taste of New Orleans,” including three “can’t miss” hallmarks of New Orleans: Jazz Night Club, Mardi Gras, and Louisiana Cajun. Be ready to put on your dancing shoes and show us your voodoo…

Watch for Our Daily Blog During Exceedance

We will be posting a daily blog on these pages during Exceedance to give you a round-up of the highlights so far including sessions, The Lab, keynote speakers, special events, and more.  Please keep an eye out for it!

See you soon in the Big Easy.

Closing the Resilience Gap: A Tale of Two Countries, Nepal and Chile

Nepal house smallOn April 25, 2015, a magnitude 7.8 earthquake struck nearly 50 miles (80 km) northwest of Kathmandu, the capital of Nepal.  This resulted in more than 8,600 fatalities, the destruction of around half a million homes, and left 2.8 million people displaced.

Some two years on and rebuilding efforts have barely started, as US$4.1 billion of pledged international aid is reportedly stalled within Nepal’s National Reconstruction Authority.

As of February 2017, 14,000 homes have been rebuilt and some 30,000 homes are in construction – less than a tenth of the total number of homes destroyed.

Contrast this with the situation in Chile. Since a magnitude 9.4 earthquake in 1960, the country has focused on adequate seismic design requirements within its building code, with both government and the public willing to follow the principles of earthquake-resistant building design. And it’s paying off.

After a magnitude 8.8 quake in 2010, structures in areas that experienced strong shaking had less damage than would have been seen if building codes were weaker. Of 370,000 housing units affected by the earthquake, nearly half experienced only minor damage, and just 22 percent were destroyed.  Where commercial buildings were designed with the help of structural engineers, only five were destroyed, according to the U.S. Geological Survey.

This wide inequity in resilience between two countries facing major seismic hazard brings into sharp focus the urgent need for better quantification, mitigation, and post-event protection for all people, regardless of their location.

Bridging the Divide

Communities around the world can become more resilient both before an event strikes, through practices such as construction education and the implementation of building codes, or post-event by providing insurance and other appropriate risk transfer solutions for individuals and governments. By empowering these stakeholders, our industry can play a vital role in helping to ensure a safer world for all.

Social enterprises such as Build Change, who work on the ground in countries like Nepal, Columbia, and Haiti, are helping to bridge some of this ‘resilience gap’ by working with local governments to institute building codes and train their construction sectors in locally attainable and safe building practices. Over the past 10 years, Build Change has trained over 25,000 people in the basics of safe construction, created over 12,000 local jobs, and enabled 245,000 people to live and learn in safer homes and schools within some of the most catastrophe-prone regions of the planet.

Nepal builder smallThis week, during the annual RMS Impact Trek, both our employees and our clients representing major insurance and reinsurance firms are working together on the ground in Nepal with Build Change, exploring solutions to bring greater synergy and resilience capacity-building to the forefront of our market. We are proud to partner with Build Change by also providing grants to jumpstart and enhance its country programs, and allowing the organization to use our products for free in order to better quantify the risk landscape of the countries in which they operate.

All of us within the insurance industry have an opportunity to reshape the future for communities around the globe by allowing them to better measure and understand their risk, so that responsible mitigation efforts can take shape. We can create tools to help ensure that those who are struck by catastrophe can recover quickly and completely.

At RMS, we remain focused on contributing to this mission by strengthening resilience from the ground up, and continuing our work alongside impactful organizations like Build Change.

The Age of a Roof and The Price You Pay: New Analysis of Hurricane Risk in the U.S.

RMS has completed research on hurricane risk to single-family dwellings using an improved understanding of roof age, which can lead to more accurate loss projections using our models

Residential gable end roof failure in the Bahamas, observed following Hurricane Matthew

Residential gable end roof failure in the Bahamas, observed following Hurricane Matthew

Weak roofs mean losses during hurricanes. During reconnaissance trips to the southeast U.S. and the Bahamas following Hurricane Matthew last fall, RMS experts saw ample evidence of this simple fact.  Their on-the-ground survey highlighted everything from shingle and tile damage to complete roof failures.

Roof weakness significantly influences RMS’ view of structural vulnerability in our North Atlantic Hurricane models, which can factor in a roof’s age, covering, and shape into calculations of potential loss. However, this valuable property data is not captured by many insurers, and this could represent a missed business opportunity to improve underwriting – whether it be pricing or risk selection.

Extending the Data, Refining the Insights

RMS already has a dataset of hurricane claims from over one million single-family dwelling (SFD) homes in Florida and the northeast U.S., representing $240 billion in total insured value. However, this dataset lacks roof characteristics for a majority of the homes, so we augmented it with roof age information obtained from BuildFax, which holds detailed building characteristics for over 90 million properties in over 10,000 U.S. cities and counties. From this enhanced dataset we found:

  • About 70 percent of Florida homes (SFDs) had roofs aged 10 years or older at the time of the 2004-05 hurricanes
  • Roughly half of the Northeast homes (SFDs) had roofs aged 20 years or older at the time of Superstorm Sandy (2012)
  • Only 20% of all homes (SFDs) still had their original roofs, although this proportion was lower for coastal properties than for inland properties

So what was the relationship between roof age and losses? In the second stage of our research, our vulnerability modelers paired the exposure data with 182,000 hurricane claims, totaling $2.25 billion in paid losses, to look for patterns related to roof age.

graph claim severity 1

Normalized severity of Florida claims from the 2004-05 hurricanes, by roof age and selected wind speed bands, for all risk classes

Normalized severity of Northeast claims from Sandy, by roof age and selected wind speed bands, for all risk classes.

Normalized severity of Northeast claims from Sandy, by roof age and selected wind speed bands, for all risk classes

 

 

 

 

 

 

 

 

 

As expected, we found that homes with older roofs generally corresponded with more claims, and claims of greater severity. This was most evident at the low wind speeds experienced in the Northeast U.S. during Superstorm Sandy, as well as at higher wind speeds experienced in the Florida hurricanes. These graphs show that buildings in Florida with a roof older than 20 years are associated with claims that are between 50-100% more severe, compared with buildings having a roof less than five years old. A similar trend appears in the Northeast, but is muted because of the smaller dataset.

That’s the picture from historical data. But what about modeling potential future events? To answer that question we analyzed the enlarged Florida dataset, focusing on how roof age at a particular location compares to the industry average for that region.

patchwork map

Change in modeled AAL by Florida county when including roof age information from BuildFax

The change in modeled average annual loss (AAL) by county shows a patchwork of increased and decreased risk that corresponds to the average roof age of properties in each county.

So we can see that using roof age data leads to significant differences in modeled loss within regions.

That’s a valuable insight in itself. But we decided to drill down a little deeper.

 

 

 

From counties to ZIP codes to individual locations

Although the maximum change in AAL was less than 10% at the county level, changes of up to 20% were observed at the level of ZIP codes. These results show that improved understanding of predominant roof age could influence a company to change its regional underwriting strategy or refine its rating territories.

Going more granular still, within each county and ZIP code there is variation in the roof age of individual homes and this is critical to consider when writing new business. The scatter plot below shows the change in AAL at individual locations. Those homes with older roofs produce higher than average AAL and vice versa.

red blob map

Change in modeled AAL by location when including roof age information. “Location AAL” (x-axis) represents AAL without roof age

So when we go down to the level of individual locations the impact of roof age data leads to loss changes of up to 50%, demonstrating higher significance than at the regional level. For high hurricane risk locations in Florida with large baseline AALs, this change translates into substantial dollar amounts. That’s crucial to know, revealing key opportunities to improve underwriting practices. For instance, companies might choose to quote more competitively on price for properties with newer roofs.

Unsurprisingly, over time strengthened building codes and practices have led to stronger roofs that are more resilient to hurricane damage. But this research tells us much more – the sheer magnitude of modeled loss changes observed was significant, with clear implications for profitability, as explained by BuildFax CEO Holly Tachovsky:

“These results reveal key opportunities to improve underwriting practices, including pricing and risk selection. A focus on roof age can be the difference-maker for loss ratios in certain geographies. As a result, we see a growing level of sophistication among carriers that want to rate and select with a higher degree of accuracy.”

RMS remains committed to partnerships with industry experts like BuildFax to communicate the business benefits of emerging trends in the (re)insurance space.