Lloyd’s syndicates are not getting the most from risk models
Some Lloyd’s underwriters do not use catastrophe models to their full potential. As a result, syndicates must invest in ensuring staff have a better understanding of models and their inherent strengths and weaknesses.
That was the stark assessment made by Tom Bolt, director of performance management at Lloyd’s speaking at a CATEX reception in London last week. “I often think that the people who use the models don’t properly understand them,” he said.
Bolt said that he had little time for syndicates that wanted to change models just because they were unhappy with the results. Bolt said that he would not allow a syndicate to change which catastrophe model it used without first conducting substantial research into why that particular model was unsuitable.
“I would have a lot more time for them if they had interrogated the model and had their own data to challenge it,” he said.
While he is a fan of using tools like catastrophe models, Bolt believes models need to be challenged by the underwriters who use them. And to do that, underwriters must better understand the data available to them.
“You need to challenge your model, but how can you do that if you don’t have underlying data to challenge that model with?” he told the audience at the event.
There were some positives. According to Bolt, many Lloyd’s underwriters are exceptionally good at using their experience and expertise to question whether a model is too liberal or conservative.
“That’s the difference between working with Lloyd’s in comparison with just a standard capital allocation model that you get with a lot of other people,” he said. “Understanding the weaknesses and strengths of the model is very important.”
Bolt added that he believes that many models do not properly incorporate parameter risk. He also questioned whether the industry had really got to grips with the information that models provide.
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