Launching new risk models in Asia
As JBA Risk Management Singapore launches new risk models in the Asia-Pacific region, Iain Willis, its managing director, explains to SIRC Today the potential of these new products and how they will benefit the region.
JBA is well known for flood risk intelligence, but we understand your latest catastrophe model will be an agri-risk one for India. Is this a new area of focus for JBA?
Yes, one of the big highlights for early 2018 will be the new JBA India crop model we’re launching.
Our primary work will continue to be major updates to our existing catastrophe flood models, scenarios, maps and continuing developments to our catastrophe software platform, JCalf, but this is a very exciting progression for the company.
Why crop insurance?
It’s one of the fastest developing market areas in Asia-Pacific. Non-life insurance in India grew by 32 percent last year—a significant part of that growth was down to the Pradhan Mantri Fasal Bima Yojana (PMFBY), also known as the Prime Minister’s crop insurance scheme. Global reinsurers invested heavily in this market, and given our expertise in probabilistic risk modelling to natural perils, it was a logical next step.
Tell us about the new model.
Like all projects JBA Risk Management undertakes, the most exciting aspect is when you can deliver an ‘industry first’ and this is something we’ll be doing again with this model. Indian crop models developed previously have been based on statistical or index based methodologies.
Essentially, this process involves studying historic yield information and then trying to de-trend it, a complex process drawing statistical correlations between aggregated weather data and the ultimate crop yield.
There are many limitations in this approach: it is notoriously uncertain to de-trend historic yields as local farming techniques have changed significantly over the last 40 to 50 years in India; and new varieties of crops (eg, genetically modified) now exist leading production yields to increase exponentially in some areas. Consequently, drawing correlations from aggregated weather data indices can be highly misleading, so we decided to come at this from a completely different perspective.
The JBA India crop model will be based on a state-of-the-art physical crop model, whereby we simulate the growth of each of the 70 insured crops over their respective growing seasons (rabi crops such as wheat and barley in winter, and kharif crops during the summer monsoon) for all 707 districts in India over the last 150 years.
This method of modelling is completely innovative to crop insurance and allows us to capture the daily stresses of the plant that will contribute to the eventual annual yield. It avoids the need to de-trend spurious historic losses and means we can adopt an agnostic approach based on remodelling historical yields based on today’s farming practice. It’s a new approach in probabilistic modelling.
How is JBA different from the other vendor modelling companies?
One of the huge benefits of being a relatively new entrant to the re/insurance industry is that we bring entirely fresh ideas, new catastrophe models to emerging markets that previously weren’t covered, and a strong focus on research. For example, we were the first vendor company to develop and bring to market catastrophe flood models for India, Sri Lanka, Malaysia, and Vietnam.
Added to that, being new to risk management, we’ve avoided many legacy issues that have dogged more established modelling companies in recent years. For several years, catastrophe modelling was seen as a ‘black box’ and all the modelling assumptions, uncertainties, and methodologies therein, were not shared with clients. That led to misunderstandings, and to some extent, a general lack of trust in modelling firms for many stakeholders in risk management.
At JBA, this just hasn’t been an issue. We share every technical aspect with our clients in our documentation, data, software, exposure profiling. The way we see it is that if the client fully understands how the models or maps are generated, it empowers them to best use this information or the results generated and also understand the various uncertainties associated in stochastic modelling.
What is the next ‘big thing’ for Asia-Pacific re/insurers in catastrophe modelling?
We’re at an important inflection point in catastrophe modelling that could mean some radical innovations may be on the way for risk management. Recently, the ecosystem of ‘open modelling’ initiatives (eg, the Oasis Loss Framework) has been slowly building momentum. Essentially, we are witnessing the emergence of a community and wider marketplace for catastrophe models to be accessed.
This is great news for reinsurers and modelling companies as potentially they will have far more options available for risk management deployment. In Europe, we’re now starting to see many leading reinsurers embed and adopt these open frameworks into our own risk management practice. This is really exciting for Asia-Pacific re/insurers where, all too often, no natural catastrophe modelling solution has been available.
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