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People are wondering where the actual versus modeled lossfor Maria may eventually wind up. The answer to that question depends on the often ignored and missing fifth box of modeling – what I refer to as Modeling Chaos. Cat models are a mix of science, engineering, experience and judgement. Modeling building coverages have a strong foundations in science, engineering and experience. As we move further away from the traditional building coverages the models gradually move along with it introducing more professional judgement and with it more loss uncertainty in the analysis.
Models do an excellent job of evaluating wind, earthquake, or flood risk when considered as a standalone structure insulated from other surrounding influences. However catastrophe events do not exclude other influences. Natural phenomena typically impact large areas introducing many new hazard elements and competing recovery needs which are invisible to most of today's models. The interaction between the modeled risk(s) and it's surrounding influences can be quite extreme, variable, and chaotic. As such it is difficult to calculate and model. Some may be included by a general loss amplification adjustment but the majority of the surrounding influences are too variable by event or location and not considered. These should be within a missing and not fully comprehended fifth box of models that accounts for the chaos surrounding an event. A fifth important box that needs to be included with the hazard, vulnerability, encoding and financial modeling boxes of today.
Models are learning models and with each new event we begin to act on things that we suspected were deficient in our prior thinking. Three major chaotic components that are not fully considered when modeling extreme events and need to be are how the human, infrastructure, interplay between mutiple hazards, and the competing elements influence the eventual insured and economic losses.
Human elements included preparedness, reaction, decision priorities, socio-economic resiliency, psychological, and other responses that can decrease or increase recovery costs. This would also include the potential for any post event political (regulatory and statutory) decisions.
The quality and availability of a sound supporting infrastructure. This would include how extensive the supporting infrastructure can be, how well built it is, are there multiple means for moving resources in and out of the impacted area, how quickly can the infrastructure be repaired and most importantly how geographically accessible is the affected community by other means? Islands such as Puerto Rico are more isolated than other areas of the US and this makes it more difficult to undertake widespread infrastructure recovery. The lack of working infrastructure impedes our ability to rebuild the infrastructure the areas it serves. Examples of other the major areas that may be difficult to rebuild quickly due to geographical challenges include Long Island and NYC, Miami (peninsula), and San Francisco. Longer recovery times mean larger losses.
Competing Elements. This includes during and after the event. During an event the debris and building components of one structure could become damaging projectiles to other surrounding structures that otherwise would not have been damaged. Too many times an up to code building was damaged by the debris from a neighboring building. If a model does not have information about these surrounding structures then how can a model account for the additional exposure?.. it can't After an event affected entities compete against each other for resources, material and labor, pushing up rebuilding costs and times. The greater and more congested, hard to get to, and conflicting the number of competeing entities seeking resources are then the more expensive and time consuming it will be to rebuild.
As an industry our first concern is to help those impacted by hurricane Maria. We hope that people can get back to their normal lives as soon as possible. As someone who has looked at natural catastrophes for decades I also see Maria as another lesson to all of us just how important the influence that this fifth box has on the actual versus modeled losses. It could be significant or less than anticipated by some. Nevertheless the fifth box, Modeling Chaos, needs to be accounted for when considering capacity,modeling, and underwriting results. To ignore this box challenges our understanding of the true economic and insured risk that we face. I am eager to see how the human, infrastructure, and competing elements of the fifth box differed in the industry's modeling of Maria.
TITLE: Reinsurance Modeling and Exposure Assistant
DEPARTMENT: Actuarial (Columbus, OH office location)
POSITION OBJECTIVE: Assist in Catastrophe Modeling and Risk Management activities of the AAIC Columbus assumed business portfolio
REPORTS TO: Reinsurance Modeling and Exposure Analyst
DUTIES and RESPONSIBILITIES:
On September 15, 2016, the ISCM held its inaugural Education Seminar at the Fitch learning Center in downtown New York City. The following are scenes from the event that drew over 50 participants from the insurance and reinsurance industry.
Session presentations can be found in the Members Only Download Page.
Special thanks to:
The Seminar Presenters: Katie Carter, Dan Dick, Nick DiMuzio, Roger Grenier, David Keeton, James Waller, Amy Wixon
The Education Committee: Dan Dick, Nick DiMuzio, David Keeton, David McCommas, Minchong Mao, Imelda Powers, Amy Wixon
The first ISCM Zurich event that has taken place for several years was in mid-September, and the subject provoked some interesting discussion: “The Protection Gap: a marketing slogan or a development need?”. In the Q&A style of our panel discussion, here’s an overview of the event:
What was the conclusion? Is the Protection Gap a marketing slogan or a development need?
The overall conclusion from our presenters, Margareta Wahlström (former head of the UN Office for Disaster Risk Reduction) and Daniel Hofmann (Geneva Association) is that there is a definite development need. Through his presentation (posted in the members’ area on this site), Daniel demonstrated how insurance works to stabilize the economy after disaster strikes.
Our panel, which consisted of leaders from across the insurance industry, agreed with our presenters. Michael Roth, from Munich Re, commented that he would argue that the ‘Protection Gap’ is both a marketing slogan and a development need, and we should not shy away from this. One or two members of the audience challenged the consensus and suggested it is a marketing slogan, particularly due to the lack of trust of the insurance industry by consumers.
The event was about encouraging practical actions. What guidance was given to catastrophe managers from the speakers?
1. Take an interest in influencing policy and innovation. Cat management knowledge is needed to develop robust frameworks
Margareta Wahlström commented that, from an outsider’s perspective, the insurance industry is conservative, traditional and change happens only when triggered by external events. What innovative ideas are already out there and could be developed further?
Daniel Hofmann outlined different methods:
What did the panelists see as the ‘next big thing’?
1. Resilience bonds
2. Convergence of the public and private sector
There are many initiatives that the private sector can provide to public sector challenges, including resilience bonds as discussed above
3. Risk models covering the globe
What initiatives should we look out for?
There are two initiatives which were mentioned:
Is an ISCM event going to happen again in Zurich?
We hope this will become a regular (annual?) event for the Zurich community to get together and discuss a topic which benefits from a wider perspective. From initial feedback, attendees are keen to have a topic which leads on from the ‘Protection Gap’. We would like to rotate the organisers to share the ownership of the event - more organisers always welcome!
*** For Daniel Hoffman's Presentation - Please See the Members Only Download Page ***
On December 1, 2015, International Society of Catastrophe Managers (ISCM) hosted its first webinar in collaboration with the Aquarium of the Pacific, the City of Long Beach, and California technology company ImageCat, on the topic of climate change and its impacts on coastal cities. The hour- long webinar was titled “Building Resilient Communities – Model for the City of Long Beach, California.” The webinar brought together members of the scientific community on climate change research, addressed the challenges of the coastal City of Long Beach, and presented some industry information on climate change data and its potential use for decision making, both in the public and private sectors including insurance and reinsurance.
Presenters included Dr. Jerry Schubel (President and CEO, Aquarium of the Pacific), David Ashman (City of Long Beach), and Shubharoop Ghosh (Vice President of Data Services, ImageCat). As the first presenter, David Ashman gave an overview of the City’s emergency response goals and management cycle, as well as preparedness planning. He highlighted the City’s planning for coastal hazards, including the focus on mitigation, collaboration and resilient organizations. Dr. Jerry Schubel covered a broad global perspective on coastal cities at risk and shared his findings and observations about the major threats to Long Beach. Dr. Schubel presented scenarios of predicted inundation impacts for coastal areas of Long Beach. He concluded by offering some guidelines for becoming resilient and being prepared to manage the impacts of climate change. Shubharoop Ghosh presented the final segment of the webinar, discussing several datasets and technologies that help to monitor and assess the risk from climate change. Data on elevation and coastline are key in understanding the climate change hazard, particularly sea level rise. Technologies such as remote sensing help quantify exposure and enable governments to rapidly respond to catastrophic events such as floods.
There were several questions posed to the speakers in the question and answer session, ranging from the involvement of private insurance in risk transfer of city’s buildings to the relative risk of climate change and earthquake for Long Beach. In conclusion, Nick DiMuzio, ISCM Secretary, extended his thanks to the attendees, the speakers, and the Aquarium of the Pacific for hosting the session.
ISCM Members are able to download the presentation here.
Shubharoop Ghosh and Jerry Schubel
Stay tuned for the event story ...
Team Winners: Iain Davie - QBE Re, Stephen Martin - Brit Insurance, Rob Stevenson - Apollo Underwriting
Participants: Patrick Daniell (Aon Benfield), Federico Waisman (Ariel Re), Alastair Norris (RMS), Rob Stevenson (Apollo Underwriting), Iain Davie (QBE Re), Stephen Martin (Brit), Mark Christenson (ACE), Simon Webber (QBE Re), Giovanni Garcia (AIR), David Hollister (Markel), Nick Farley (Beaufort Group), Harry White (AIR), Luke Howard (Endurance), Keith Leung (JLT Re), James Digby (Advent Group), Chris Marsham (Navigators), Will Mayes (RMS), Phillip Murfett (Brit)
Longest drive Winner - Alastair Norris, RMS and the closest to the pin winner - Keith Leung, JLT Re
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