Are (re)insurers sufficiently capitalized to withstand a major earthquake in a metropolitan area during peak hours? The U.S. workers’ compensation insurance market continues to generate underwriting profit. According to Fitch Ratings, 2019 is on track to mark the fifth consecutive year of profits and deliver a statutory combined ratio of 86 percent in 2018. Since 2015, it has achieved an annual average combined ratio of 93 percent. The market’s size has increased considerably since the 2008 financial crisis sparked a flurry of activity in the workers’ compensation arena. Over the last 10 years, written premiums have risen 50 percent from approximately US$40 billion to almost US$60 billion, aided by low unemployment and growth in rate and wages. Yet market conditions are changing. The pricing environment is deteriorating, prior-year reserve releases are slowing and severity is ticking upwards. And while loss reserves currently top US$150 billion, questions remain over whether these are sufficient to bear the brunt of a major earthquake in a highly populated area. The Big One California represents over 20 percent of the U.S. workers’ compensation market. The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) forecasts a written premium pot of US$15.7 billion for 2019, a slight decline on 2018’s US$17 billion figure. “So, the workers’ compensation sector’s largest premium is concentrated in the area of the U.S. most exposed to earthquake risk,” explains Nilesh Shome, vice president at RMS. “This problem is unique to the U.S., since in most other countries occupational injury is covered by government insurance schemes instead of the private market. Further, workers’ compensation policies have no limits, so they can be severely impacted by a large earthquake.” Workers’ compensation insurers enjoy relatively healthy balance sheets, with adequate profitability and conservative premium-to-surplus ratios. But, when you assess the industry’s exposure to large earthquakes in more detail, the surplus base starts to look a little smaller. “We are also talking about a marketplace untested in modern times,” he continues. “The 1994 Northridge Earthquake in Los Angeles, for example, while causing major loss, occurred at 4:30 a.m. when most people were still in bed, so had limited impact from a workers’ compensation perspective.” Analyzing the Numbers Working with the WCIRB, RMS modeled earthquake scenarios using Version 17 of the RMS® North America Earthquake Casualty Model, which incorporates the latest science in earthquake hazard and vulnerability research. The portfolio provided by the WCIRB contained exposure information for 11 million full-time-equivalent employees, including occupation details for each. The analysis showed that the average annual estimated insured loss is US$29 million, which corresponds to 0.5 cents per $100 payroll and $2.50 per employee. The 1-in-100-year insurance loss is expected to exceed US$300 million, around 5,000 casualties including 300 fatalities; while at peak work-time hours, the loss could rise to US$1.5 billion. For a 1-in-250-year loss, the figure could top US$1.4 billion and more than 1,000 fatalities, rising to US$5 billion at peak work-time hours. But looking at the magnitude 7.8 San Francisco Earthquake in 1906 at 5:12 a.m., the figure would be 7,300 injuries, 1,900 fatalities and around US$1 billion in loss. At peak work hours, this would rise to 22,000 casualties, 5,800 fatalities and a US$3 billion loss. To help reduce the impact of major earthquakes, RMS is working with the Berkeley Research Lab and the United States Geological Survey (USGS) to research the benefits of an earthquake early warning system (EEWS) and safety measures such as drop-cover-hold and evacuating buildings after an EEWS alarm. Initial studies indicate that an EEWS alert for the large, faraway earthquakes such as the 1857 magnitude 7.9 Fort Tejon Earthquake near Los Angeles can reduce injuries by 20 percent-50 percent. Shome concludes: “It is well known in the industry that workers’ compensation loss distribution has a long tail, and at conferences RMS has demonstrated how our modeling best captures this tail. The model considers many low probability, high consequence events by accurately modeling the latest USGS findings.”
With the introduction of the Risk Data Open Standard, the potential now exists to change the way the (re)insurance industry interacts with risk modeling data In May 2019, RMS introduced the (re)insurance industry to a new open data standard. Set to redefine how the market structures data, the Risk Data Open Standard (RDOS) offers a flexible, fully transparent and highly efficient framework — spanning all risks, models and contracts and information sets — that can be implemented using a wide range of data technology. “The RDOS has been constructed to hold the entire set of information that supports the analysis of any risk” Ryan Ogaard RMS That this new standard has the potential to alter fundamentally how the market interacts with exposure data is not hyperbole. Consider the formats that it is replacing. The RMS Exposure and Results Data Modules (EDM and RDM) have been the data cornerstones of the property catastrophe market for over 20 years. Other vendors use similar data formats, and some catastrophe modeling firms have their own versions. These information workhorses have served the sector well, transforming the way property catastrophe risk is transacted, priced and managed. Out With the Old But after over two decades of dedicated service, it is past time these formats were put out to pasture. Built to handle a narrow range of modeling approaches, limited in their ability to handle multiple information formats, property-centric by design and powered by outdated technology, the EDM/RDM and other formats represent “old-gen” standards crumbling under current data demands. “EDM and RDM have earned their status as the de facto standards for property catastrophe data exchange,” explains Ryan Ogaard, senior vice president at RMS. “Clearly documented, easy to implement, SQL-based, they were groundbreaking and have been used extensively in systems and processes for over 20 years. But the industry has evolved well beyond the capabilities of all the existing formats, and a new data model must be introduced to facilitate innovation and efficiency across our industry.” The RDOS is not the only attempt to solve the data formatting challenge. Multiple other initiatives have been attempted, or are underway, to improve data efficiency within the insurance industry. However, Ogaard believes all of these share one fatal flaw — they do not go far enough. “I have been involved in various industry groups exploring ways to overcome data challenges,” he explains, “and have examined the potential of different options. But in every instance, what is clear is that they would not advance the industry far enough to make them worth switching to.” The switching costs are a major issue with any new data standard. Transitioning to a new format from one so firmly embedded within your data hierarchy is a considerable move. To shift to a new standard that offers only marginal relief from the data pains of the current system would not be enough. “The industry needs a data container that can be extended to new coverages, risk types or contracts,” he states. “If we require a different format for every line of business or type of model, we end up with a multiplicative world of data inefficiency. Look at cyber risk. We’ve already created a separate new standard for that information. If our industry is truly going to move forward, the switch must solve our challenges in the short, medium and long term. That means a future-proof design to handle new models, risks and contracts — ideally all in one container.” Setting the Standard Several years in the making, the RDOS is designed to address every deficiency in the current formatting framework, providing a data container that can be easily modified as needs change and can deliver information in a single, auditable format that supports a wide range of analytics. It is already used within the framework of the recently launched risk management platform RMS Risk Intelligence™ “The RDOS is designed to be extended across several dimensions,” Ogaard continues. “It can handle the data and output to support any modeling algorithm — so RMS, or anyone else, can use it as a basis for new or existing models. It was originally built to support our high-definition (HD) modeling, which requires a domain-specific language to represent policy or treaty terms and structures — that was not possible with the old format. During that process, we realized that we should design a container that would not have to be replaced in the future when we inevitably build other types of models.” The RDOS can also span all business lines. It is designed to accommodate the description of any risk item or subject at risk. The standard has inherent flexibility — new tables can be introduced to the framework without disrupting existing sets, while current tables can be extended to handle information for multiple model types or additional proprietary data. “EDM and RDM were fundamental to creating a much more stable, resilient and dynamic marketplace,” says Ogaard. “That level of modeling simply isn’t available across other lines — but with the RDOS it can be. Right off the bat, that has huge implications for issues such as clash risk. By taking the data that exists across your policy and treaty systems and converting it into a single data format, you can then apply an accumulation engine to evaluate all clash scenarios. So, essentially, you can tackle accumulation risk across all business lines.” It is also built to encompass the full “risk story.” Current data formats essentially provide exposure and modeling results, but lack critical information on how the exposure was used to create the results. This means that anyone receiving these data sets must rely on an explanation of how an analysis was done — or figure it out themselves. “The RDOS has been constructed to hold the entire set of information that supports the analysis of any risk,” he explains. “This includes exposures, (re)insurance coverage information, the business structure used to create the results, complete model settings and adjustments, the results, and the linkage between the information. Multiple analyses can also be included in a single container. That means more time can be spent on accurate risk decision-making.” The RDOS is also independent of any specific technology and can be implemented in modern object relational technology, making it highly flexible. It can also be implemented in SQL Server if the limitations of a relational representation are adequate for the intended usage. The insurance industry, and cat analytics software, has been slow to adopt the power of tools such as Parquet, Spark, Athena and other new and powerful (and often open-source) data tools that can drive more data insights. Opening the Box For the RDOS to achieve its full potential, however, it cannot be constrained by ownership. By its very nature, it must be an open standard operated in a neutral environment if it is to be adopted by all and serve a larger market purpose. RMS recognized this and donated the RDOS to the industry (and beyond) as an open standard, harnessing open-source principles common in the software industry. Taking this route is perhaps not surprising given the executive leadership now in place at the company, with both CEO Karen White and Executive Vice President of Product Cihan Biyikoglu having strong open-source credentials. “When they saw the RDOS,” Ogaard explains, “it clearly had all of the hallmarks of an open-source candidate. It was being built by a leading market player with an industrywide purpose that required a collaborative approach.” What RMS has created with the RDOS represents a viable standard — but rather than a finished product, it is a series of building blocks designed to create a vast range of new applications from across the market. And to do that it must be a completely open standard that can evolve with the industry. “Some companies claim to have open standards,” he continues, “but by that they mean that you can look inside the box. Truly open standards are set up to be overseen and actually modified by the industry. With the RDOS, companies can not only open the box, but take the standard out, use it and modify it to create something better. They can build additions and submit them for inclusion and use by the entire industry. The RDOS will not be driven by RMS needs and priorities — it will exist as a separate entity. RMS cannot build every potential solution or model. We hope that by making this an open standard, new synergy is created that will benefit everyone — including us, of course.” Under Scrutiny To create a standard fit for all, RMS accepted that the RDOS could not be built in isolation and pushed out into the market — it had to be tested, the underlying premise reviewed, the format scrutinized. To ensure this, the company set up a steering committee from across the (re)insurance market. Charged with putting the RDOS through its paces, the committee members are given a central role in virtually every development stage. The committee is currently sixteen companies strong and growing. It will be dynamic and membership will change over time as issues and company focuses evolve. The membership list can be seen at www.riskdataos.org. “You cannot sit in an ivory tower and decide what might work for the industry as a whole,” Ogaard explains. “You need a robust vetting process and by creating this group of leading (re)insurance practitioners, each committed not simply to the success of the project but to the development of the best possible data solution, the RDOS will be guided by the industry, not just one company.” The role of the committee is twofold. First, it reviewed the existing specification, documentation and tooling to determine if it was ready for market consumption. RDOS saw its industry launch at the end of January 2020, and now the RDOS is published, the committee’s role will be to advise on the priorities and scope of future developments based on market-led requests for change and improvement. “Almost every open standard in any industry is based on a real, working product — not a theoretical construct,” he states. “Because the RDOS was built for a practical purpose and is in real-world use, it is much more likely to hold up to wider use and scrutiny.” So, while the RDOS may be growing its awareness in the wider market, it has already established its data credentials within the RMS model framework. Of course, there remains the fundamental challenge of shifting from one data format to another — but measures are already in place to make this as painless as possible. “The RDOS is essentially a superset of the original EDM and RDM formats,” he explains, “offering an environment in which the new and old standards are interchangeable. So, a company can translate an EDM into an RDOS and vice versa. The open standard tooling will include translators to make this translation. The user will therefore be able to operate both formats simultaneously and, as they recognize the RDOS data benefits, transition to that environment at their own pace. The RDOS could be extended to include other modelers’ data fields as well — so could solve model interoperability issues — if the industry decides to use it this way.” The standard has launched on the global development platform GitHub, which supports open-source standards, offering a series of downloadable assets including the RDOS specification, documentation, tools and data so that companies can create their own implementation and translate to and from old data formats. The potential that it creates is considerable and to a degree only limited by the willingness of users to push boundaries. “Success could come in several forms,” Ogaard concludes. “The RDOS becomes the single universal container for data exchange, creating huge efficiencies. Or it creates a robust ecosystem of developers opening up new opportunities and promoting greater industry choice. Or it supports new products that could not be foreseen today and creates synergies that drive more value — perhaps even outside the traditional market. Ideally, all of these things.”
Insurance-linked securities (ILS) investors want to know more about how climate change impacts investment decisions, according to Paul Wilson, head of non-life analytics at Securis Investment Partners, an ILS asset manager We make investments that are typically annual to two-to-three years in duration, so we need to understand the implications of climate change on those timescales,” explains Paul Wilson, head of non-life analytics at Securis Investment Partners. “We reevaluate investments as part of any renewal process, and it’s right to ask if any opportunity is still attractive given what we know about how our climate is changing. “The fundamental question that we’re trying to address is, ‘Have I priced the risk of this investment correctly for the next year?’” he continues. “And therefore, we need to know if the catastrophe models we are using accurately account for the impact climate change may be having. Or are they overly reliant on historical data and, as such, are not actually representing the true current risk levels for today’s climate?” Expertise in climate change is a requirement for how Securis is thinking about risk. “We have investors who are asking questions about climate change, and we have a responsibility to be able to demonstrate to them that we are taking the implications into consideration in our investment decisions.” “We have investors who are asking questions about climate change, and we have a responsibility to demonstrate to them that we are taking the implications into consideration in our investment decisions Paul Wilson Securis Investment Partners The rate at which a changing climate may influence natural catastrophes will present both a challenge and opportunity to the wider industry as well as to catastrophe modeling companies, thinks Wilson. The results coming out of climate change attribution studies are going to have to start informing the decisions around risk. For example, according to attribution studies, climate change tripled the chances of Hurricane Harvey’s record rainfall. “Climate change is a big challenge for the catastrophe modeling community,” he says. “It’s going to put a greater burden on catastrophe modelers to ensure that their models are up to date. The frequency and nature of model updates will have to change. Models we are using today may become out of date in just a few years’ time. That’s interesting when you think about the number of perils and regions where climate change could have a significant impact. “All of those climate-related models could be impacted by climate change, so we have to question the impact that is having today,” he adds. “If the model you are using to price the risk has been calibrated to the last 50 years, but you believe the last 10 or last 20 years are more representative because of the implication of climate change, then how do you adjust your model according to that? That’s the question we should all be looking to address.”
As environmental, social and governance principles become more prominent in guiding investment strategies, the ILS market must respond In recent years, there has been a sharper focus by the investment community on responsible investment. One indicator of this has been the increased adoption of the Principles for Responsible Investment (PRI), as environmental, social and governance (ESG) concerns become a more prominent influencer of investment strategies. Investment houses are also seeking closer alignment between their ESG practices and the United Nations’ Sustainable Development Goals (SDGs). The 17 interconnected SDGs, set in 2015, are a call to action to end poverty, achieve peace and prosperity for all, and create a sustainable society by 2030. As investors target more demonstrable outcomes from their investment practices, is there a possible opportunity for the insurance-linked securities (ILS) market to grow, given the potential societal capital that insurance can generate? “Insurance certainly has all of the hallmarks of an ESG-compatible investment opportunity,” believes Charlotte Acton, director of capital and resilience solutions at RMS. “It has the potential to promote resilience through enabling broader access and uptake of appropriate affordable financial protection and reducing the protection gap; supporting faster and more efficient responses to disasters; and incentivizing mitigation and resilient building practices pre- and post-event.” RMS has been collaborating on numerous initiatives designed to further the role of insurance and insurance technologies in disaster and climate-change resilience. These include exploring ways to monetize the dividends of resilience to incentivize resilient building, using catastrophe models to quantify the benefits of resilience investments such as flood defenses, and earthquake retrofit programs for housing. The work has also involved designing innovative parametric structures to provide rapid post-disaster liquidity. “Investors will want a clear understanding of the exposure or assets that are being protected and whether they are ESG-friendly” Charlotte Acton RMS “ILS offers a clear route for investors to engage with insurance,” explains Acton, “broadening the capital pool that supports insurance is critical as it facilitates the expansion of insurance to new regions and allows the industry to absorb increasingly large losses from growing threats such as climate change.” Viewed as a force for social good, it can certainly be argued that insurance-linked securities supports a number of the U.N.’s SDGs, including reducing the human impact of disasters and creating more sustainable cities, increasing overall resilience levels and increasing access to financial services that enhance sustainable growth potential. While there is opportunity for ILS to play a large part in ESG, the specific role of ILS within PRI is still being determined. According to LGT Capital Partners ESG Report 2019, managers in the ILS space have, in general, yet to start “actively integrating ESG into their investment strategies,” adding that across the ILS asset class “there is still little agreement on how ESG considerations should be applied. However, there is movement in this area. For example, the Bermuda Stock Exchange, a primary exchange for ILS issuers, recently launched an ESG initiative in line with the World Federation of Exchanges’ Sustainability Principles, stating that ESG was a priority in 2019 “with the aim to empower sustainable and responsible growth for its member companies, listings and the wider community.” For ILS to become a key investment option for ESG-focused investors, it must be able to demonstrate its sustainability credentials clearly. “Investors will want a clear understanding of the exposure or assets that are being protected,” Acton explains, “and whether they are ESG-friendly. They will want to know whether the protection offered provides significant societal benefits. If the ILS market can factor ESG considerations into its approach more effectively, then there is no reason why it should not attract greater attention from responsible investors.”
Why the PRA’s stress test has pushed climate change to the top of (re)insurance company agendas As part of its 2019 biennial insurance stress test, the U.K. insurance industry regulator — for the first time — asked insurers and reinsurers to conduct an exploratory exercise in relation to climate change. Using predictions published by the United Nations’ Intergovernmental Panel on Climate Change (IPCC) and in other academic literature, the Bank of England’s Prudential Regulation Authority (PRA) came up with a series of future climate change scenarios, which it asked (re)insurers to use as a basis for stress-testing the impact on their assets and liabilities. The PRA stress test came at a time when pressure is building for commercial and financial services businesses around the world to assess the likely impact of climate change on their business, through initiatives such as the Task Force for Climate-Related Financial Disclosures (TCFD). The submission deadline for the stress-tested scenarios ended on October 31, 2019, following which the PRA will publish a summary of overall results. From a property catastrophe (re)insurance industry perspective, the importance of assessing the potential impact, both in the near and long term, is clear. Companies must ensure their underwriting strategies and solvency levels are adequate so as to be able to account for additional losses from rising sea levels, more climate extremes, and potentially more frequent and/or intense natural catastrophes. Then there’s the more strategic considerations in the long term — how much coverages change and what will consumers demand in a changing climate? The PRA stress test, explains Callum Higgins, product manager of global climate at RMS, is the regulator’s attempt to test the waters. The hypothetical narratives are designed to help companies think about how different plausible futures could impact their business models, according to the PRA. “The climate change scenarios are not designed to assess current financial resilience but rather to provide additional impetus in this area, with results comparable across firms to better understand the different approaches companies are using.” “There was pressure on clients to respond to this because those that don’t participate will probably come under greater scrutiny” Callum Higgins RMS RMS was particularly well placed to support (re)insurers in responding to the “Assumptions to Assess the Impact on an Insurer’s Liabilities” section of the climate change scenarios, with catastrophe models the perfect tools to evaluate such physical climate change risk to liabilities. This portion of the stress test examined how changes in both U.S. hurricane and U.K. weather risk under the different climate change scenarios may affect losses. The assumptions around U.K. weather included shifts in U.K. inland and coastal flood hazard, looking at the potential loss changes from increased surface runoff and sea level rise. While in the U.S., the assumptions included a 10 percent and 20 percent increase in the frequency of major hurricanes by 2050 and 2100, respectively. “While the assumptions and scenarios are hypothetical, it is important (re)insurers use this work to develop their capabilities to understand physical climate change risk,” says Higgins. “At the moment, it is exploratory work, but results will be used to guide future exercises that may put (re)insurers under pressure to provide more sophisticated responses.” Given the short timescales involved, RMS promptly modified the necessary models in time for clients to benefit for their submissions. “To help clients start thinking about how to respond to the PRA request, we provided them with industrywide factors, which allowed for the approximation of losses under the PRA assumptions but will likely not accurately reflect the impact on their portfolios. For this reason, we could also run (re)insurers’ own exposures through the adjusted models, via RMS Analytical Services, better satisfying the PRA’s requirements for those who choose this approach. “To reasonably represent these assumptions and scenarios, we think it does need help from vendor companies like RMS to adjust the model data appropriately, which is possibly out of scope for many businesses,” he adds. Detailed results based on the outcome of the stress-test exercise can be applied to use cases beyond the regulatory submission for the PRA. These or other similar scenarios can be used to sensitivity test possible answers to questions such as how will technical pricing of U.K. flood be affected by climate change, how should U.S. underwriting strategy shift in response to sea level rise or how will capital adequacy requirements change as a result of climate change — and inform strategic decisions accordingly.
As the insurance industry’s Dive In Festival continues to gather momentum, EXPOSURE examines the factors influencing the speed at which the diversity and inclusion dial is moving September 2019 marks the fifth Dive In Festival, a global movement in the insurance sector to support the development of inclusive workplace cultures. An industry phenomenon, it has ballooned in size from a London-only initiative in 2015 attracting 1,700 people to an international spectacle spanning 27 countries and reaching over 9,000 people in 2018. That the event should gather such momentum clearly demonstrates a market that is moving forward. There is now an industrywide acknowledgement of the need to better reflect the diversity of the customer base within the industry’s professional ranks. The Starting Point As Pauline Miller, head of talent development and inclusion (D&I) at Lloyd’s, explains, the insurance industry is a market that has, in the past, been slow to change its practitioner profile. “If you look at Lloyd’s, for example, for nearly three hundred years it was a men-only environment, with women only admitted as members in December 1969. “It’s about bringing together the most creative group of people that represent different ways of thinking that have evolved out of the multiple factors that make them different” Pauline Miller Lloyd’s “You also have to recognize that the insurance industry is not as far along the diversity and inclusion journey compared to other sectors,” she continues. “I previously worked in the banking industry, and diversity and inclusion had been an agenda issue in the organization for a number of years. So, we must acknowledge that this is a journey that will require multiple more steps before we really begin breaking down barriers.” However, she is confident the insurance industry can quickly make up ground. “By its very nature, the insurance market lends itself to the spread of the D&I initiative,” Miller believes. “We are a relationship-based business that thrives on direct contact, and our day-to-day activities are based upon collaboration. We must leverage this to help speed up the creation of a more diverse and inclusive environment.” The positive effects of collaboration are already evident in how this is evolving. Initiatives like Dive In, a weeklong focus on diversity and inclusion, within other financial sectors have tended to be confined to individual organizations, with few generating the level of industrywide engagement witnessed within the insurance sector. However, as Danny Fisher, global HR business partner and EMEA HR manager at RMS, points out, for the drive to gain real traction there must be marketwide consensus on the direction it is moving in. “There is always a risk,” he says, “that any complex initiative that begins with such positive intent can become derailed if there is not an understanding of a common vision from the start, and the benefits it will deliver. “There also needs to be better understanding and acknowledgement of the multitude of factors that may have contributed to the uniformity we see across the insurance sector. We have to establish why this has happened and address the flaws in our industry contributing to it.” It can be argued that the insurance industry is still composed of a relatively homogeneous group of people. In terms of gender disparity, ethnic diversity, and people of different sexual orientations, from different cultural or social backgrounds, or with physical or mental impairments, the industry recognizes a need to improve. Diversity is the range of human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, social class, physical ability or attributes, religious or ethical values system, national origin, and political beliefs. “As a market,” Miller agrees, “there is a tendency to hire people similar to the person who is recruiting. Whether that’s someone of the same gender, ethnicity, sexual orientation or from the same university or social background.” “You can end up with a very uniform workforce,” adds Fisher, “where people look the same and have a similar view of the world, which can foster ‘groupthink’ and is prone to bias and questionable conclusions. People approach problems and solutions in the same way, with no one looking at an alternative — an alternative that is often greatly needed. So, a key part of the diversity push is the need to generate greater diversity of thought.” The challenge is also introducing that talent in an inclusive way that promotes the effective development of new solutions to existing and future problems. That broad palette of talent can only be created by attracting and retaining the best and brightest from across the social spectrum within a framework in which that blend of skills, perspectives and opinions can thrive. “Diversity is not simply about the number of women, ethnicities, people with disabilities or people from disadvantaged backgrounds that you hire,” believes Miller. “It’s about bringing together the most creative group of people that represent different ways of thinking that have evolved out of the multiple factors that make them different.” Moving the Dial There is clearly a desire to make this happen and strong evidence that the industry is moving together. Top-level support for D&I initiatives coupled with the rapid growth of industrywide networks representing different demographics are helping firm up the foundations of a more diverse and inclusive marketplace. But what other developments are needed to move the dial further? “We have to recognize that there is no ‘one-size-fits-all’ to this challenge,” says Miller. “Policies and strategies must be designed to create an environment in which diversity and inclusion can thrive, but fundamentally they must reflect the unique dynamics of your own organization. “We also must ensure we are promoting the benefits of a career in insurance in a more powerful and enticing way and to a broader audience,” she adds. “We operate in a fantastic industry, but we don’t sell it enough. And when we do get that diversity of talent through the door, we have to offer a workplace that sticks, so they don’t simply walk straight back out again. “For example, someone from a disadvantaged community coming through an intern program may never have worked in an office environment before, and when they look around are they going to see people like themselves that they can relate to? What role models can they connect with? Are we prepared for that?” For Fisher, steps can also be taken to change processes and modernize thinking and habits. “We have to be training managers in interview and evaluation techniques and discipline to keep unconscious bias in check. There has to be consistency with meaningful tests to ensure data-driven hiring decisions. “At RMS, we are fortunate to attract talent from around the world and are able to facilitate bringing them on board to add further variety in solving for complex problems. A successful approach for us, for example, has been accessing talent early, often prior to their professional career.” There is, of course, the risk that the push for greater diversity leads to a quota-based approach. “Nobody wants this to become a tick-box exercise,” believes Miller, “and equally nobody wants to be hired simply because they represent a particular demographic. But if we are expecting change, we do need measurements in place to show how we are moving the dial forward. That may mean introducing realistic targets within realistic timeframes that are monitored carefully to ensure we are on track. “Ultimately,” she concludes, “what we are all working to do is to create the best environment for the broadest spectrum of people to come into what is a truly amazing marketplace. And when they do, offering a workplace that enables them to thrive and enjoy very successful careers that contribute to the advancement of our industry. That’s what we all have to be working toward.”
Current flood defenses in the U.K. reduce annual losses from river flooding by £1.1 billion, according to research by RMS Flooding is one of the most significant natural hazards for the U.K. with over five million homes and businesses in England at risk of flooding and coastal erosion, according to the Environment Agency. Flood barrier in Shropshire, England In 2015, the U.K. government announced a six-year, £2.3 billion investment in flood defenses. But the Environment Agency proposes a further annual investment of £1 billion through 2065 to keep pace with the flood-related impacts of climate change and shifts in exposure levels. Critical to targeted flood mitigation investment is understanding the positive impacts of current defenses. In June 2019, Flood Re* released its Investing in Flood Risk Management and Defenses study, conducted by RMS. Addressing the financial benefits of existing flood defenses for the first time, data from the RMS® Europe Inland Flood HD Model demonstrated that current infrastructure reduced annual losses from riverine flooding by £1.1 billion. This was based on ground-up losses, using the RMS U.K. Economic Exposure Database covering buildings and contents for residential, commercial, industrial and agricultural, plus business interruption losses. Critical to targeted flood investment is understanding the positive impacts of current defenses “Our flood model incorporates countrywide defense data sourced from the Environment Agency and the Scottish Flood Defence Asset Database,” says Theresa Lederer, a consultant within the RMS capital and resilience solutions team, “including walls, levees and embankments, carefully reviewed and augmented by RMS experts. Our initial model run was with defenses in place, and then, using the in-built model functionality to enter user-defined defense values, we removed these [defenses in place].” The differences in average annual loss results between the two analyses was £1.1 billion, with losses increasing from £0.7 billion under current defenses to £1.8 billion in the undefended case. The analysis also revealed a differentiated picture of flood risk and defenses at the regional and local levels. “The savings relative to total inland flood risk are more pronounced in Northern Ireland and England (both over a 50 percent reduction in average annual losses) than Scotland and Wales,” she explains. “But when you view the savings relative to surface-water flood risk only, these are similarly significant across the country, with loss reductions exceeding 75 percent in all regions. This reflects the fact that pluvial flooding, which is kept constant in the analysis, is a bigger loss driver in Scotland and Wales, compared to the rest of the U.K.” Other insights included that the more deprived half of the population — based on the U.K. Townsend Deprivation Index — benefited from 70 percent of the loss reduction. The study also showed that while absolute savings were highest for catastrophic events, the proportion of the savings compared to the overall level of loss caused by such events was less significant. “In the case of 1-in-5-year events,” Lederer says, “river flood defenses prevent approximately 70 percent of inland flood losses. For 1-in-500-year events this drops to 30 percent; however, the absolute value of those 30 percent is far higher than the absolute savings realized in a 1-in-5-year event. “Should the focus of defenses therefore be on providing protection from major flood events, with potential catastrophic impacts even though return on investment might not be as attractive given their infrequency? Or on attritional losses from more frequent events, which might realize savings more frequently but fail to protect from the most severe events? Finding a balanced, data-driven approach to flood defense investment is crucial to ensure the affordability of sustainable flood resilience.”