Risk model collaboration could shift status quo
Some of the industry’s most influential companies including Lloyd’s of London, Allianz, Aon Benfield and Guy Carpenter have joined forces on a project that could revolutionise the way risk models are used by the industry.
Some 21 insurers, reinsurers and brokers, have collaborated to form an independent cat modelling framework that they claim will offer increased transparency and reduce costs.
The Oasis Loss Modelling Framework could trigger a fundamental shift in the way risk models are used by the industry and threaten the market dominance of the three big risk modelling firms the industry has become so reliant upon.
“We have created an open source core that allows users to development and innovate around it,” said Dickie Whitaker, project director of the not-for-profit Oasis Loss Modelling Framework.
“Take flood for example, there are many more models out there than just the ‘big three’ and Oasis allows users to input individual models from each supplier – as well as their own internal cat models.”
Founding members also include Zurich, Amlin, Catlin, Hiscox and Willis.
Whitaker also explained that Oasis’ intent was to create a bridge between the modelling companies and the re/insurance industry, allowing the latter to “challenge calculated risks”.
“By creating a layer of transparency, we are allowing the re/insurers and brokers to gain a better understanding of their risks. Just because models exist doesn’t mean that they can be used easily by the industry,” he said.
Peter Taylor, technical director of Oasis, said: “The Oasis framework reveals the uncertainties in pricing and capital adequacy following from variations in model and portfolio data and from within the calculations themselves.”
The platform is designed to operate as a set of plug-and-play components, technically web services, which can be developed by any member to meet many variations. It will initially offer models covering flood, earthquake, tsunami and bush fire risks. However, Thai flood and Middle East earthquake are expected soon.
Paul Nunn, head of natural catastrophe risk modelling, SCOR Global P&C added: “The Oasis framework brings genuine innovation and choice to the catastrophe risk modelling landscape and is particularly welcome against a backdrop of increasing insurance industry requirements.”
Whitaker added: “The framework is designed to encourage development of further models. We don’t build models ourselves, we encourage associate managers to.”
While a number of insurers have already pledged their involvement, Whitaker said more members would join in the future.