Gaps in risk models are being filled

Despite improvements in recent years, gaps remain in the quality of some of the risk models in use in Asia, George Attard, head of Aon Benfield Asia-Pacific, told SIRC Today. As such, the industry must look to continually improve these, he said.

“While at first glance there appears to be significant model coverage across the region, for the key perils of typhoon and earthquake, when you take a closer look at the modelling landscape there are gaps including the vintage and quality of some of the existing models,” Attard said.

“So there’s an opportunity to upgrade those models and when we get feedback from them we can see the impact on non-modelled perils, the Thailand floods being an obvious example.”

He said Impact Forecasting, the risk modelling unit of Aon Benfield, is investing heavily in plugging some of these gaps. Specifically, he said its team in Singapore has made significant progress on many fronts. In 2010, it completed the first pan-Asian typhoon model and, in 2011, the first commercially available Thai flood model. It has also developed a number of probabilistic models and realistic disaster scenarios designed to help its clients understand their exposures.

Given the existing landscape, we are leveraging our scale and presence to focus a lot of attention on bridging the modelling and knowledge gaps in the region,” Attard said.

“We continue to make substantial investment in data and analytics including our catastrophe modelling development centre of excellence, Impact Forecasting.”

Aon Benfield is not alone in making such an investment, he said. While data availability and quality has been an issue in Asia in the past, as it has improved he has also seen an increase in investment on the modelling front “as clients and reinsurers look to understand the perils that can impact their portfolios in the region”.

“There have been a couple of external factors driving the improvement in data quality, including the events of 2011 driving an increased focus on better understanding the accumulations that insurers are exposed to, and also increasing the pace of regulatory change in the region and the rating agency pressure for companies to have a better understanding of what they are potentially exposed to.

“The models play one part in that, but it also comes down to the underwriting, the data and understanding the exposures and risk accumulations that companies might potentially have that may impact their financials.”