Flood risk is driving innovation in risk models in Europe: RMS


Risk modelling company RMS has seen an increase in demand for its modelling from primary insurers looking to get a better understanding of their risk selection and the pricing of smaller risks, Laurent Marescot, senior director, RMS, told Intelligent Insurer.

Marescot said that one driver of this has been the nature of repeat losses from similar events, specifically flood, in recent years.

“Traditionally, cat model analytics is primarily used to underwrite large commercial and industrial exposures, but now insurers also want to understand their retail and small commercial risks better at the point of underwriting,” he said.

“We see this especially for flood, which is a high-hazard gradient peril, in markets with low flood insurance penetration such as Italy or Germany.

“It can also be seen in France where, despite the presence of the national nat cat scheme, insurers want to better understand their tariffication and make more informed strategic underwriting decisions, in addition to managing their retention.”

He added that, since it is not possible to run a full probabilistic model for retail underwriting, RMS derived specific data products from its models to help this market segment, such as hazard maps or pre-compiled rating tables (such as loss costs).

“This is a game-changer in the way underwriting is done,” Marescot said.

He added that there is a broader trend across Europe to achieve a complete and comprehensive view across all natural catastrophe perils in the region.

“This is not only a concern for reinsurance, but also for insurance. The market needs suitable tools to manage accumulation and better plan diversification,” he said.

“Beyond managing wind risk, which remains the key peril for reinsurance and Solvency II, there is a large focus on flood, especially in the light of repeated damaging events as we saw again in October in France and Italy.”

He said that, in some countries, such as Italy, flood insurance penetration is very low, with fewer than 5 percent of residential buildings covered for this peril. RMS covers Italy as a part of its pan-Europe flood model coverage and Marescot said the firm is seeing traction in the Italian market to use this tool to estimate a suitable tariffication, grow new business profitability and to help narrow the protection gap.

RMS, Flood, Catastrophe, Insurance, Reinsurance, Laurent Marescot, Europe

Intelligent Insurer