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NIGEL ALLENFebruary 11, 2021
Map with pinned location
Map with pinned location
Location, Location, Location: A New Era in Data Resolution
February 11, 2021

The insurance industry has reached a transformational point in its ability to accurately understand the details of exposure at risk. It is the point at which three fundamental components of exposure management are coming together to enable (re)insurers to systematically quantify risk at the location level: the availability of high-resolution location data, access to the technology to capture that data and advances in modeling capabilities to use that data. Data resolution at the individual building level has increased considerably in recent years, including the use of detailed satellite imagery, while advances in data sourcing technology have provided companies with easier access to this more granular information. In parallel, the evolution of new innovations, such as RMS® High Definition Models™ and the transition to cloud-based technologies, has facilitated a massive leap forward in the ability of companies to absorb, analyze and apply this new data within their actuarial and underwriting ecosystems. Quantifying Risk Uncertainty “Risk has an inherent level of uncertainty,” explains Mohsen Rahnama, chief modeling officer at RMS. “The key is how you quantify that uncertainty. No matter what hazard you are modeling, whether it is earthquake, flood, wildfire or hurricane, there are assumptions being made. These catastrophic perils are low-probability, high-consequence events as evidenced, for example, by the 2017 and 2018 California wildfires or Hurricane Katrina in 2005 and Hurricane Harvey in 2017. For earthquake, examples include Tohoku in 2011, the New Zealand earthquakes in 2010 and 2011, and Northridge in 1994. For this reason, risk estimation based on an actuarial approach cannot be carried out for these severe perils; physical models based upon scientific research and event characteristic data for estimating risk are needed.” A critical element in reducing uncertainty is a clear understanding of the sources of uncertainty from the hazard, vulnerability and exposure at risk. “Physical models, such as those using a high-definition approach, systematically address and quantify the uncertainties associated with the hazard and vulnerability components of the model,” adds Rahnama. “There are significant epistemic (also known as systematic) uncertainties in the loss results, which users should consider in their decision-making process. This epistemic uncertainty is associated with a lack of knowledge. It can be subjective and is reducible with additional information.” What are the sources of this uncertainty? For earthquake, there is uncertainty about the ground motion attenuation functions, soil and geotechnical data, the size of the events, or unknown faults. Rahnama explains: “Addressing the modeling uncertainty is one side of the equation. Computational power enables millions of events and more than 50,000 years of simulation to be used, to accurately capture the hazard and reduce the epistemic uncertainty. Our findings show that in the case of earthquakes the main source of uncertainty for portfolio analysis is ground motion; however, vulnerability is the main driver of uncertainty for a single location.” The quality of the exposure data as the input to any mathematical models is essential to assess the risk accurately and reduce the loss uncertainty. However, exposure could represent the main source of loss uncertainty, especially when exposure data is provided in aggregate form. Assumptions can be made to disaggregate exposure using other sources of information, which helps to some degree reduce the associated uncertainty. Rahnama concludes, “Therefore, it is essential in order to minimize the uncertainty related to exposure to try to get location-level information about the exposure, in particular for the region with the potential of liquification for earthquake or for high-gradient hazard such as flood and wildfire.”  A critical element in reducing that uncertainty, removing those assumptions and enhancing risk understanding is combining location-level data and hazard information. That combination provides the data basis for quantifying risk in a systematic way. Understanding the direct correlation between risk or hazard and exposure requires location-level data. The potential damage caused to a location by flood, earthquake or wind will be significantly influenced by factors such as first-floor elevation of a building, distance to fault lines or underlying soil conditions through to the quality of local building codes and structural resilience. And much of that granular data is now available and relatively easy to access. “The amount of location data that is available today is truly phenomenal,” believes Michael Young, vice president of product management at RMS, “and so much can be accessed through capabilities as widely available as Google Earth. Straightforward access to this highly detailed satellite imagery means that you can conduct desktop analysis of individual properties and get a pretty good understanding of many of the building and location characteristics that can influence exposure potential to perils such as wildfire.” Satellite imagery is already a core component of RMS model capabilities, and by applying machine learning and artificial intelligence (AI) technologies to such images, damage quantification and differentiation at the building level is becoming a much more efficient and faster undertaking — as demonstrated in the aftermath of Hurricanes Laura and Delta. “Within two days of Hurricane Laura striking Louisiana at the end of August 2020,” says Rahnama, “we had been able to assess roof damage to over 180,000 properties by applying our machine-learning capabilities to satellite images of the affected areas. We have ‘trained’ our algorithms to understand damage degree variations and can then superimpose wind speed and event footprint specifics to group the damage degrees into different wind speed ranges. What that also meant was that when Hurricane Delta struck the same region weeks later, we were able to see where damage from these two events overlapped.” The Data Intensity of Wildfire Wildfire by its very nature is a data-intensive peril, and the risk has a steep gradient where houses in the same neighborhood can have drastically different risk profiles. The range of factors that can make the difference between total loss, partial loss and zero loss is considerable, and to fully grasp their influence on exposure potential requires location-level data. The demand for high-resolution data has increased exponentially in the aftermath of recent record-breaking wildfire events, such as the series of devastating seasons in California in 2017-18, and unparalleled bushfire losses in Australia in 2019-20. Such events have also highlighted myriad deficiencies in wildfire risk assessment including the failure to account for structural vulnerabilities, the inability to assess exposure to urban conflagrations, insufficient high-resolution data and the lack of a robust modeling solution to provide insight about fire potential given the many years of drought. Wildfires in 2017 devastated the town of Paradise, California  In 2019, RMS released its U.S. Wildfire HD Model, built to capture the full impact of wildfire at high resolution, including the complex behaviors that characterize fire spread, ember accumulation and smoke dispersion. Able to simulate over 72 million wildfires across the contiguous U.S., the model creates ultrarealistic fire footprints that encompass surface fuels, topography, weather conditions, moisture and fire suppression measures. “To understand the loss potential of this incredibly nuanced and multifactorial exposure,” explains Michael Young, “you not only need to understand the probability of a fire starting but also the probability of an individual building surviving. “If you look at many wildfire footprints,” he continues, “you will see that sometimes up to 60 percent of buildings within that footprint survived, and the focus is then on what increases survivability — defensible space, building materials, vegetation management, etc. We were one of the first modelers to build mitigation factors into our model, such as those building and location attributes that can enhance building resilience.” Moving the Differentiation Needle In a recent study by RMS and the Center for Insurance Policy Research, the Insurance Institute for Business and Home Safety and the National Fire Protection Association, RMS applied its wildfire model to quantifying the benefits of two mitigation strategies — structural mitigation and vegetation management — assessing hypothetical loss reduction benefits in nine communities across California, Colorado and Oregon. Young says: “By knowing what the building characteristics and protection measures are within the first 5 feet and 30 feet at a given property, we were able to demonstrate that structural modifications can reduce wildfire risk up to 35 percent, while structural and vegetation modifications combined can reduce it by up to 75 percent. This level of resolution can move the needle on the availability of wildfire insurance as it enables development of robust rating algorithms to differentiate specific locations — and means that entire neighborhoods don’t have to be non-renewed.” “By knowing what the building characteristics and protection measures are within the first 5 feet and 30 feet at a given property, we were able to demonstrate that structural modifications can reduce wildfire risk up to 35 percent, while structural and vegetation modifications combined can reduce it by up to 75 percent” Michael Young, RMS While acknowledging that modeling mitigation measures at a 5-foot resolution requires an immense granularity of data, RMS has demonstrated that its wildfire model is responsive to data at that level. “The native resolution of our model is 50-meter cells, which is a considerable enhancement on the zip-code level underwriting grids employed by some insurers. That cell size in a typical suburban neighborhood encompasses approximately three-to-five buildings. By providing the model environment that can utilize information within the 5-to-30-foot range, we are enabling our clients to achieve the level of data fidelity to differentiate risks at that property level. That really is a potential market game changer.” Evolving Insurance Pricing It is not hyperbolic to suggest that being able to combine high-definition modeling with high-resolution data can be market changing. The evolution of risk-based pricing in New Zealand is a case in point. The series of catastrophic earthquakes in the Christchurch region of New Zealand in 2010 and 2011 provided a stark demonstration of how insufficient data meant that the insurance market was blindsided by the scale of liquefaction-related losses from those events. “The earthquakes showed that the market needed to get a lot smarter in how it approached earthquake risk,” says Michael Drayton, consultant at RMS, “and invest much more in understanding how individual building characteristics and location data influenced exposure performance, particularly in relation to liquefaction. “To get to grips with this component of the earthquake peril, you need location-level data,” he continues. “To understand what triggers liquefaction, you must analyze the soil profile, which is far from homogenous. Christchurch, for example, sits on an alluvial plain, which means there are multiple complex layers of silt, gravel and sand that can vary significantly from one location to the next. In fact, across a large commercial or industrial complex, the soil structure can change significantly from one side of the building footprint to the other.” Extensive building damage in downtown Christchurch, New Zealand after 2011 earthquake The aftermath of the earthquake series saw a surge in soil data as teams of geotech engineers conducted painstaking analysis of layer composition. With multiple event sets to use, it was possible to assess which areas suffered soil liquefaction and from which specific ground-shaking intensity. “Updating our model with this detailed location information brought about a step-change in assessing liquefaction exposures. Previously, insurers could only assess average liquefaction exposure levels, which was of little use where you have highly concentrated risks in specific areas. Through our RMS® New Zealand Earthquake HD Model, which incorporates 100-meter grid resolution and the application of detailed ground data, it is now possible to assess liquefaction exposure potential at a much more localized level.” “Through our RMS® New Zealand Earthquake HD model, which incorporates 100-meter grid resolution and the application of detailed ground data, it is now possible to assess liquefaction exposure potential at a much more localized level” — Michael Drayton, RMS This development represents a notable market shift from community to risk-based pricing in New Zealand. With insurers able to differentiate risks at the location level, this has enabled companies such as Tower Insurance to more accurately adjust premium levels to reflect risk to the individual property or area. In its annual report in November 2019, Tower stated: “Tower led the way 18 months ago with risk-based pricing and removing cross-subsidization between low- and high-risk customers. Risk-based pricing has resulted in the growth of Tower’s portfolio in Auckland while also reducing exposure to high-risk areas by 16 percent. Tower’s fairer approach to pricing has also allowed the company to grow exposure by 4 percent in the larger, low-risk areas like Auckland, Hamilton, and Taranaki.” Creating the Right Ecosystem The RMS commitment to enable companies to put high-resolution data to both underwriting and portfolio management use goes beyond the development of HD Models™ and the integration of multiple layers of location-level data. Through the launch of RMS Risk Intelligence™, its modular, unified risk analytics platform, and the Risk Modeler™ application, which enables users to access, evaluate, compare and deploy all RMS models, the company has created an ecosystem built to support these next-generation data capabilities. Deployed within the Cloud, the ecosystem thrives on the computational power that this provides, enabling proprietary and tertiary data analytics to rapidly produce high-resolution risk insights. A network of applications — including the ExposureIQ™ and SiteIQ™ applications and Location Intelligence API — support enhanced access to data and provide a more modular framework to deliver that data in a much more customized way. “Because we are maintaining this ecosystem in the Cloud,” explains Michael Young, “when a model update is released, we can instantly stand that model side-by-side with the previous version. As more data becomes available each season, we can upload that new information much faster into our model environment, which means our clients can capitalize on and apply that new insight straightaway.” Michael Drayton adds: “We’re also offering access to our capabilities in a much more modular fashion, which means that individual teams can access the specific applications they need, while all operating in a data-consistent environment. And the fact that this can all be driven through APIs means that we are opening up many new lines of thought around how clients can use location data.” Exploring What Is Possible There is no doubt that the market is on the cusp of a new era of data resolution — capturing detailed hazard and exposure and using the power of analytics to quantify the risk and risk differentiation. Mohsen Rahnama believes the potential is huge. “I foresee a point in the future where virtually every building will essentially have its own social-security-like number,” he believes, “that enables you to access key data points for that particular property and the surrounding location. It will effectively be a risk score, including data on building characteristics, proximity to fault lines, level of elevation, previous loss history, etc. Armed with that information — and superimposing other data sources such as hazard data, geological data and vegetation data — a company will be able to systematically price risk and assess exposure levels for every asset up to the portfolio level.” “The only way we can truly assess this rapidly changing risk is by being able to systematically evaluate exposure based on high-resolution data and advanced modeling techniques that incorporate building resilience and mitigation measures” — Mohsen Rahnama, RMS Bringing the focus back to the here and now, he adds, the expanding impacts of climate change are making the need for this data transformation a market imperative. “If you look at how many properties around the globe are located just one meter above sea level, we are talking about trillions of dollars of exposure. The only way we can truly assess this rapidly changing risk is by being able to systematically evaluate exposure based on high-resolution data and advanced modeling techniques that incorporate building resilience and mitigation measures. How will our exposure landscape look in 2050? The only way we will know is by applying that data resolution underpinned by the latest model science to quantify this evolving risk.”

Helen YatesMay 05, 2020
TreatyIQ: Striking a difficult balance
TreatyIQ: Striking a difficult balance
TreatyIQ: Striking a Difficult Balance
May 05, 2020

As treaty underwriters prepare to navigate another challenging renewal season, compounded by an uncertain economic outlook, many are looking to new technological solutions to help them capitalize on nascent optimism around rates and build sustainable profitability. EXPOSURE explores the importance of reliable marginal impact analytics to bias underwriting decisions in favor of diversification The fall of investment profits for insurance and reinsurance companies as a result of the impact of COVID-19 on financial markets is likely to encourage an upswing in reinsurance pricing. One of the factors that facilitates a hardening market is low investment returns, making an underwriting profit even more of an imperative. As the midyear renewals approach, reinsurance companies are cautiously optimistic that the reinsurance rate on line will continue on an upward trend. According to Willis Towers Watson, pricing was up significantly on loss-affected accounts as of April 1, but elsewhere there were more modest rate rises. It suggests that at this point in the cycle reinsurers cannot count on rate increases, presenting market pricing uncertainty that will need to be navigated in real time during the renewals. In the years of weaker market returns, investment in tools to deliver analytical rigor and agile pricing to underwriters can be difficult to justify, but in many cases, existing analytical processes during busy periods can expose blind spots in the assessment of a cedant portfolio and latency in the analysis of current portfolio risk positions. These inefficiencies will be more pronounced in the current work-from-home era and will leave many underwriters wondering how they can quickly identify and grab the best deals for their portfolios. Reducing Volatility Through the Cycle Both parts of the underwriting cycle can put pressure on reinsurers on underwriting decisions. Whether prices are hardening or softening, market forces can lead reinsurers toward higher volatility. “Part of the interplay in the treaty underwriting guidelines has to do with diversification,” explains Jesse Nickerson, senior director, pricing actuary at RMS. “Underwriters generally want to write risks that are diversifying in nature. However, when rates are low and competition is fierce, this desire is sometimes overwhelmed by pressure to put capital to use. Underwriting guidelines then have a somewhat natural tendency to slip as risks are written at inadequate prices. Underwriters generally want to write risks that are diversifying in nature. However, when rates are low and competition is fierce, this desire is sometimes overwhelmed by pressure to put capital to use Jesse Nickerson RMS “The reduced competition in the market during the period of low profitability triggers increases in rates, and the bounce upward begins,” he continues. “As rates rise and profitability increases, another loosening of underwriting guidelines can occur because all business begins to look like good business. This cycle is a challenge for all of these reinsurance companies to try and manage as it can add significant volatility to their book.” Tools such as RMS TreatyIQ™ help underwriters better carry out marginal impact analytics, which considers the view of risk if new books of business are included in a treaty portfolio. Treaty underwriters are typically tasked with balancing the profitability of individual treaties alongside their impact to aggregate portfolio positions. “One of the things that underwriters take into account as part of the underwriting process is, ‘What is the impact of this potential piece of business on my current portfolio,’” explains Oli Morran, director of product at RMS. “It’s just like an investment decision except that they’re investing risk capital rather than investment capital. In order to get insight into marginal impact, treaty underwriters need to have a view of their portfolio in the application, and not just their current portfolio as it looks last week, month or quarter, but how it looks today “In order to get insight into marginal impact, treaty underwriters need to have a view of their portfolio in the application, and not just their current portfolio as it looks last week, month or quarter, but how it looks today,” he continues. “So, it collects all the treaty contracts you’ve underwritten and rolls it up together to get to your current portfolio position.” Based on this understanding of a reinsurer’s aggregate risk position, underwriters are able to see in real time what impact any given piece of business would have, helping to inform how much capacity they are willing to bring to bear – and at what price. As reinsurers navigate the current, asymmetric market renewals, with the added challenge that increased home-working presents, such insight will allow them to make the right judgments based on a dynamic situation. “Treaty underwriters can import that loss data into TreatyIQ, do some quick analysis and ‘math magic’ to make it work for their view of risk and then get a report in the app that tells them profitability metrics on each of the treaties in the structure, so they can configure the right balance of participation in each treaty when quoting to the broker or cedant,” says Morran. An Art and Science Relationships have always been a central part of treaty underwriting whereby reinsurers select cedants to partner with based on many years of experience and association. Regardless of where the industry is at in the market cycle, these important bonds help to shape the renewal process at key discussion points in the calendar. New tools, such as the TreatyIQ application, are enhancing both the “art” and ”science” parts of the underwriting equation. They are reducing the potential for volatility as underwriters steer portfolios through the reinsurance cycle while harnessing experience and pricing artistry in an auditable way. While much of insurtech has until now been focused on the underlying insurance market, reinsurers are beginning to benefit from applications that offer them real-time insights. An informed approach can help identify the most profitable accounts and steer underwriters toward business that best complements their company’s existing portfolio, overall strategy and risk appetite. Reinsurance underwriters can now make decisions on whether to renew and what pricing to set based on a true understanding of what one risk sitting on their desk has the ability to do to the risks they already hold. With hundreds of treaty programs to assess during a busy renewal season, such insights support underwriters as they decide which deals to underwrite and what portion of each treaty to take on. A constant challenge for treaty underwriters is how to strike the right balance between managing complex and often longstanding relationships with cedants and brokers, while at the same time ensuring that underwritten business complements an existing portfolio. Maintaining underwriting discipline while nurturing all-important client relationships is a more straightforward task when there is data and insight readily available, says Nickerson. “Much of the strength of TreatyIQ is in the efficiency of workflows in augmenting the insight underwriters have at their fingertips. The faster they can get back to a cedant or broker, the better it is for the relationship. The more completely they understand the impact to their portfolio, the better it is for their bottom line.” RMS model data has long been a foundation in reinsurance treaty transactions, providing the common market view of risk for assessing probable catastrophe losses to a cedant’s portfolio. But using modeled data in treaty pricing analytics has traditionally been a multisystem undertaking, involving a supporting cast of actuaries and cat modelers. TreatyIQ allows you to pass losses through potential treaties and quickly see which are the most profitable based on a user’s unique pricing algorithms and risk tolerance RMS Risk Intelligence™ – a modular risk analytics platform – has enabled RMS to develop TreatyIQ as a solution to the analytics needs of treaty underwriters, covering pricing and portfolio roll-up, and to close the analytical gaps that muddy pricing insights. “TreatyIQ allows you to pass losses through potential treaties and quickly see which are the most profitable based on a user’s unique pricing algorithms and risk tolerance,” continues Nickerson. “You can see which have the most positive impact on your portfolio, allowing you to go back to the broker or cedant and make a more informed pitch. Ultimately, it allows underwriters to optimize internally against the constraints that exist in their world at a time of great uncertainty and change.”

NIGEL ALLENMay 05, 2020
This changes everything
This changes everything
This Changes Everything
May 05, 2020

At Exceedance 2020, RMS explored the key forces currently disrupting the industry, from technology, data analytics and the cloud through to rising extremes of catastrophic events like the pandemic and climate change. This coupling of technological and environmental disruption represents a true inflection point for the industry. EXPOSURE asked six experts across RMS for their views on why they believe these forces will change everything Cloud Computing: Moe Khosravy, Executive Vice President, Software and Platforms How are you seeing businesses transition their workloads over to the cloud? I have to say it’s been remarkable. We’re way past basic conversations on the value proposition of the cloud to now having deep technical discussions that are truly transformative plays. Customers are looking for solutions that seamlessly scale with their business and platforms that lower their cost of ownership while delivering capabilities that can be consumed from anywhere in the world. Why is the cloud so important or relevant now? It is now hard for a business to beat the benefits that the cloud offers and getting harder to justify buying and supporting complex in-house IT infrastructure. There is also a mindset shift going on — why is an in-house IT team responsible for running and supporting another vendor’s software on their systems if the vendor itself can provide that solution? This burden can now be lifted using the cloud, letting the business concentrate on what it does best. Has the pandemic affected views of being in the cloud? I would say absolutely. We have always emphasized the importance of cloud and true SaaS architectures to enable business continuity — allowing you to do your work from anywhere, decoupled from your IT and physical footprint. Never has the importance of this been more clearly underlined than during the past few months. Risk Analytics: Cihan Biyikoglu, Executive Vice President, Product What are the specific industry challenges that risk analytics is solving or has the potential to solve? Risk analytics really is a wide field, but in the immediate short term one of the focus areas for us is improving productivity around data. So much time is spent by businesses trying to manually process data — cleansing, completing and correcting data — and on conversion between incompatible datasets. This alone is a huge barrier just to get a single set of results. If we can take this burden away, give decision-makers the power to get results in real time with automated and efficient data handling, then with that I believe we will liberate them to use the latest insights to drive business results. Another important innovation here are the HD Models™. The power of the new engine with its improved accuracy I believe is a game changer that will give our customers a competitive edge. How will risk analytics impact activities and capabilities within the market? As seen in other industries, the more data you can combine, the better the analytics become — that’s the universal law of analytics. Getting all of this data on a unified platform and combining different datasets unearths new insights, which could produce opportunities to serve customers better and drive profit or growth. What are the longer-term implications for risk analytics? In my view, it’s about generating more effective risk insights from analytics, results in better decision- making and the ability to explore new product areas with more confidence. It will spark a wave of innovation to profitably serve customers with exciting products and understand the risk and cost drivers more clearly. How is RMS capitalizing on risk analytics? At RMS, we have the pieces in place for clients to accelerate their risk analytics with the unified, open platform, Risk Intelligence™, which is built on a Risk Data Lake™ in the cloud and is ready to take all sources of data and unearth new insights. Applications such as Risk Modeler™ and ExposureIQ™ can quickly get decision-makers to the analytics they need to influence their business. Open Standards: Dr. Paul Reed, Technical Program Manager, RDOS Why are open standards so important and relevant now? I think the challenges of risk data interoperability and supporting new lines of business have been recognized for many years, as companies have been forced to rework existing data standards to try to accommodate emerging risks and to squeeze more data into proprietary standards that can trace their origins to the 1990s. Today, however, with the availability of big data technology, cloud platforms such as RMS Risk Intelligence and standards such as the Risk Data Open Standard™ (RDOS) allow support for high-resolution risk modeling, new classes of risk, complex contract structures and simplified data exchange. Are there specific industry challenges that open standards are solving or have the potential to solve? I would say that open standards such as the RDOS are helping to solve risk data interoperability challenges, which have been hindering the industry, and provide support for new lines of business. In the case of the RDOS, it’s specifically designed for extensibility, to create a risk data exchange standard that is future-proof and can be readily modified and adapted to meet both current and future requirements. Open standards in other industries, such as Kubernetes, Hadoop and HTML, have proven to be catalysts for collaborative innovation, enabling accelerated development of new capabilities. How is RMS responding to and capitalizing on this development? RMS contributed the RDOS to the industry, and we are using it as the data framework for our platform called Risk Intelligence. The RDOS is free for anyone to use, and anyone can contribute updates that can expand the value and utility of the standard — so its development and direction is not dependent on a single vendor. We’ve put in place an independent steering committee to guide the development of the standard, currently made up of 15 companies. It provides benefits to RMS clients not only by enhancing the new RMS platform and applications, but also by enabling other industry users who create new and innovative products and address new and emerging risk classes. Pandemic Risk: Dr. Gordon Woo, Catastrophist How does pandemic risk affect the market? There’s no doubt that the current pandemic represents a globally systemic risk across many market sectors, and insurers are working out both what the impact from claims will be and the impact on capital. For very good reasons, people are categorizing the COVID-19 disease as a game-changer. However, in my view, SARS [severe acute respiratory syndrome] in 2003, MERS [Middle East respiratory syndrome] in 2012 and Ebola in 2014 should also have been game-changers. Over the last decade alone, we have seen multiple near misses. It’s likely that suppression strategies to combat the coronavirus will probably continue in some form until a vaccine is developed, and governments must strike this uneasy balance between their economies and the opening of their populations to exposure from the virus. What are the longer-term implications of this current pandemic for the industry? It’s clear that the mitigation of pandemic risk will need to be prioritized and given far more urgency than before. There’s no doubt in my mind that events such as the 2014 Ebola crisis were a missed opportunity for new initiatives in pandemic risk mitigation. Away from the life and health sector, all insurers will need to have a better grasp on future pandemics, after seeing the impact of COVID-19 and its wide business impact. The market could look to bold initiatives with governments to examine how to cover future pandemics, similar to how terror attacks are covered as a pooled risk. How is RMS helping its clients in relation to COVID-19? Since early January when the first cases emerged from Wuhan, China, we’ve been supporting our clients and the wider market in gaining a better understanding of the diverse loss implications of COVID-19. Our LifeRisks® team has been actively assisting in pandemic risk management, with regular communications and briefings, and will incorporate new perspectives from COVID-19 into our infectious diseases modeling. Climate Change: Ryan Ogaard, Senior Vice President, Model Product Management Why is climate change so relevant to the market now? There are many reasons. Insurers and their stakeholders are looking at the constant flow of catastrophes, from the U.S. hurricane season of 2017, wildfires in California and bushfires in Australia, to recent major typhoons and wondering if climate change is driving extreme weather risk, and what it could do in the future. They’re asking whether the current extent of climate change risk is priced into their premiums. Regulators are also beginning to conduct stress tests on the potential impact of climate change in the future, and insurers must respond. How will climate change impact how the market operates? Similar to any risk, insurers need to understand and quantify how the physical risk of climate change will impact their portfolios and adjust their strategy accordingly. Also, over the coming years it appears likely that regulators will incorporate climate change reporting into their regimes. Once an insurer understands their exposure to climate change risk, they can then start to take action — which will impact how the market operates. These actions could be in the form of premium changes, mitigating actions such as supporting physical defenses, diversifying the risk or taking on more capital. How is RMS responding to market needs around climate change? RMS is listening to the needs of clients to understand their pain points around climate change risk, what actions they are taking and how we can add value. We’re working with a number of clients on bespoke studies that modify the current view of risk to project into the future and/or test the sensitivity of current modeling assumptions. We’re also working to help clients understand the extent to which climate change is already built into risk models, to educate clients on emerging climate change science and to explain whether there is or isn’t a clear climate change signal for a particular peril. Cyber: Dr. Christos Mitas, Vice President, Model Development How is this change currently manifesting itself? While cyber risk itself is not new, for anyone involved in protecting or insuring organizations against cyberattacks, they will know that the nature of cyber risk is forever evolving. This could involve changes in those perpetrating the attacks, from lone wolf criminals to state-backed actors or the type of target from an unpatched personal computer to a power-plant control system. If you take the current COVID-19 pandemic, this has seen cybercriminals look to take advantage of millions of employees working from home or vulnerable business IT infrastructure. Change to the threat landscape is a constant for cyber risk. Why is cyber risk so important and relevant right now? Simply because new cyber risks emerge, and insurers who are active in this area need to ensure they are ahead of the curve in terms of awareness and have the tools and knowledge to manage new risks. There have been systemic ransomware attacks over the last few years, and criminals continue to look for potential weaknesses in networked systems, third-party software, supply chains — all requiring constant vigilance. It’s this continual threat of a systemic attack that requires insurers to use effective tools based on cutting-edge science, to capture the latest threats and identify potential risk aggregation. How is RMS responding to market needs around cyber risk? With our latest RMS Cyber Solutions, which is version 4.0, we’ve worked closely with clients and the market to really understand the pain points within their businesses, with a wealth of new data assets and modeling approaches. One area is the ability to know the potential cyber risk of the type of business you are looking to insure. In version 4.0, we have a database of over 13 million businesses that can help enrich the information you have about your portfolio and prospective clients, which then leads to more prudent and effective risk modeling. A Time to Change Our industry is undergoing a period of significant disruption on multiple fronts. From the rapidly evolving exposure landscape and the extraordinary changes brought about by the pandemic to step-change advances in technology and seismic shifts in data analytics capabilities, the market is undergoing an unparalleled transition period. As Exceedance 2020 demonstrated, this is no longer a time for business as usual. This is what defines leaders and culls the rest. This changes everything.

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