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Australia is a country of extreme climates, and, accordingly, disaster insurance is a significant issue. Summer brings bushfires, cyclones and storms, while drought has been an ongoing problem for several years throughout the country. As of August 2018, insured losses due to natural catastrophes and weather events in Australia had reached $261 million.
With this in mind, Insurance Business spoke with two key figures from RMS – Pierre Wiart, managing director of the Sydney Office and Paul Burgess, regional vice president, Asia and Australasia. RMS specialises in catastrophe risk management modelling, providing key insights to insurers.
“Turning a physical hazard into loss estimation for an insurer or a reinsurer presents a number of challenges – we have to make sure the insurer understands what they’re actually insuring,” says Burgess. “What are the sums insured? Where is it? How does that translate into a loss potential when a storm like Cyclone Debbie comes through?”
Much of the work in this field is done by assessing previous data – engineering, claims and historical. Of course, this presents its own challenges; the further you go back, the less detailed information there is available. To combat this, RMS utilises its considerable research team offices across California, New York, London and India to carry out heavy computational work.
“We run through tens of thousands of years of simulations of events – windstorms blowing through Australia, for example,” says Burgess. “We’ve also got a lot of mathematicians and physicists creating all the relevant algorithms. It’s extremely complex.”
These scientific tools, along with collaboration with its insurance clients, allow RMS to provide a comprehensive view of a potential peril.
Wiart also highlights the importance of previous data around losses.
“Our experts have a deep understanding of the various losses we’ve suffered,” says Wiart. “We analyse all of our historical losses and try to understand what it means, and how it affects building vulnerabilities. So, combining our expertise on hazard and vulnerabilities with our client’s exposures allows us to produce meaningful loss estimates for the industry.”
As for the future of the industry itself, Wiart suspects it will be much more nimble than we’ve previously seen. The age of acquisition and conglomerates is coming to an end – in part due to anti-monopoly laws around the world.
“We’ve seen many new, smaller firms emerge, tackling specific portfolios,” says Wiart. “They are more slimline, more efficient and they don’t have the entire infrastructure that the big groups have to handle.”
Burgess also notes that Australia would do well to look towards its neighbours in NZ to help gauge the future of its own insurance situation.
“For example, recently and partly in response to the 2010 and 2011 Canterbury sequence of earthquakes, Tower Insurance in New Zealand moved to risk-based pricing, moving away from community rating,” says Burgess. “There’s a strong push for risk-based pricing in Australia too, but it remains to be seen whether insurers will actually use that system, given political and customer pressures.”
