As catastrophe modeling technology grows more precise, opportunities are arising not only for insurers to develop better underwriting and more targeted customer service responses to hurricanes and other disasters, but also for better mitigation of financial exposure to particular storms before they hit.
For example, Newark, CA-based Risk Management Solutions (RMS) recently released its RiskOnline system, which automates the firm's probabilistic modeling technology to track specific named storms in real time. "As the hurricane season approaches, we have traditionally given insurers the long baseline of the risk of loss," says Robert Muir-Wood, managing director, RMS, Global Risk Modeling. With the real-time application, however, he says, the firm can quantify the risk associated with a particular storm even as it advances. "No one will buy or trade on those outcomes if they can't quantify what the risk is."
RiskOnline automatically uploads National Hurricane System data on current position and key meteorological characteristics of a storm, says Muir-Wood. Based on that information, RMS runs a simulation through stochastic modeling, drawing from a database of 400,000 possible simulated storms.
"The business of offering reinsurance coverage on a live basis has been around a long time," says John DeMartini, vice president and principal, Towers Perrin Reinsurance (Philadelphia), a client of RMS. But without a discrete calculation of risk shared by both parties to the transaction, it tended to represent an unattractive alternative to buyers, he adds. "You would be buying at the worst possible time because it's just assumed you're going to get clobbered."
As an intermediary, Towers Perrin is able to use RiskOnline to evaluate risk in real-time against a client company's portfolio to arrive at "quotes that more closely match the potential exposure," DeMartini says.
"In the past, due to information imbalance, clients didn't want to buy because they felt we knew more than they did," says Gregory S. Hendrick, senior vice president and underwriter, US Division, XL Re (Bermuda). One of the benefits of real-time analysis is that "it puts the parties on an equal footing in terms of information available, and I think that will stimulate more activity."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio