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IRM publishes new flood risk insurer models
Written by Chris Lemmon
The Institute of Risk Management (IRM) has published a guidance document exploring advanced uses for insurer internal models in the context of insurance and reinsurance of flood risk. The document, created by the Internal Model Industry Forum (IMIF) at the IRM, was produced by a team led by IRM risk consultant Raphael Borrel and NN-Group’s principal insurance risk officer Dr Sebastian Rath.
With the impending implementation of Solvency II, IMIF has developed a range of research and guidance programmes exploring how insurance businesses can utilise new sophisticated risk models to create substantial value. The new models assess the ‘inherent riskiness’ of each business and the resulting capital levels required to support solvency.
The insurance and risk industry has a particular key role in highlighting the changing nature of climate-related insurance and risk management. In his autumn statement, chancellor George Osborne pledged £2 billion to protect 300,000 homes from flooding and the COP 21 United Nations Conference has convened in Paris to discuss and tackle new climate issues. The case study carried out by the IMIF highlights trends towards the growing resilience of cities and the pooling of flood risks.
Jose Morago, IRM chairman and IMIF founder, stated that “insurers increasingly rely on sophisticated risk models to navigate a challenging and changing financial environment.
The case study explores how flood risk models can support capital models and ultimately key capital management decisions, such as reinsurance needs, that support to the long term viability of the company and its ability to provide cost effective coverage.”
Author of the document, Dr Sebastian Rath, added “providing high resolution flood models remains amongst the most complex modelling jobs for natural catastrophe modellers and model vendors.”