AIR and RMS agree multi-year data sharing deal

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March 21  |  AIR Worldwide and Risk Management Solutions, Eqecat, News  |   Danielle Szeliga

Rival catastrophe modelling firms AIR Worldwide and Risk Management Solutions have formed an agreement to share exposure data, in response to the growing numbers of clients using multiple models.

An AIR spokesperson told Insurance Insight that the firm had observed an increasing number of insurers and reinsurers using multiple models and struggling with the workflow inefficiencies of moving exposure data between them.

“Options for addressing this situation will remain limited and imperfect until the catastrophe model providers cooperate directly to come up with a better solution,” he said.

The deal to share exposure data schemas with each other is designed to facilitate interoperability between the firms’ mutual clients.

Under the terms of the agreement each company will grant the other the right to develop capabilities in its products to directly import data from the other’s data formats.

It is a multi-year agreement, meaning that both firms will be able to maintain capabilities as future updates are made to either party’s schemes.

In a separate statement RMS commented: “Both RMS and AIR are pleased that, despite being competitors, we were able to collaborate very effectively in agreeing on an arrangement to address this issue to benefit our mutual clients.

“RMS is currently evaluating opportunities to form similar agreements with other catastrophe modelling firms.”

There has been speculation following the deal that the another major catastrophe modelling player, Eqecat, is in talks with RMS and AIR to join the alliance, but the firm has not yet confirmed whether this is the case.

Analysis: Insurers forced to rethink tornado coverage

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March 15  |  Eqecat, News  |   Danielle Szeliga

BOSTON (Reuters) – The deadly start to the 2012 tornado season is forcing insurers to reconsider the risks of coverage in the most storm-prone parts of the United States and industry insiders say they may have to rethink how they handle the underwriting of the reoccurring natural disasters.

Unfortunately, homeowners may find themselves either paying substantially higher rates or not having insurance at all, as insurers try to manage their exposure to what is clearly a growing concern by diversifying geographically and tightening their standards.

The U.S. insurance industry lost nearly $26 billion ontornadoes and related storms in 2011, higher than the previous record, and insurers have already lost as much as $2 billion this year.

But that total is still 50 percent less than what Hurricane Katrina cost the industry in 2005. Still, more bad news could be on the horizon as the bulk of last year’s losses came in April and May, and the peak of tornado season runs through July.


Disaster modeler Eqecat said the total number of tornadoes recorded this year to date is more than twice the seven-year average. It was Eqecat that estimated industry losses from last week’s storms at $1 billion to $2 billion.

“While it’s not to the same scale as what a major hurricane could do to a Florida or the Eastern coastal states, I think the risk of severe thunderstorms is growing and awareness is growing,” said Brad Lemons, vice president of product and pricing at Nationwide Mutual , the eighth-largest property insurer in the country.

Nationwide Insurance, as with others in the industry, is trying a mix of different things like diversifying geographically to moderate its exposure to the most risky locations, tightening underwriting standards and charging more where it can.


Homeowners in hard-hit states are already paying the cost this year. For example, State Farm, the country’s largest home and auto insurer, received approval from regulators for a 5 percent hike in owner-occupied homeowners insurance rates in Alabama as of last November. In Mississippi, it sought a 15.8 percent rate hike for its manufactured housing coverage.

Those rate rises are small in comparison to what people in Louisiana and Florida experienced post-Katrina where many people were paying double within three years.

The tornadoes on Friday generated another 6,300 claims for State Farm in just the first day after impact.

In a statement, State Farm said its response to risk is considered over time and not based on any one event, much like other insurers who say recent rate hikes are more about planning for the future than recovering past losses.

“While recent claims experience is often an indicator of future claims experience, catastrophe claims experience tends to be aberrational. We evaluate catastrophe claims experience over longer periods of time than we do other types of claims experience,” the company said.

The Consumer Federation of America, in a February study written by a former Texas insurance commissioner, claimed homeowners were paying 10 times more out of pocket for damage after Katrina than after Hurricane Andrew in 1992, and rates have rose further since that time.

It is not just homeowners, though; car owners are also feeling the pain. In tornado-hit states, new research suggests catastrophe losses are contributing directly to higher costs, even in the highly competitive world of auto insurance.

“The more we’ve seen tornadoes hit the Midwest, it would be a factor there,” said Amy Danise, editorial director of Insure.com, which does comparisons on state-by-state auto insurance rates. “When you’re seeing these storms sweep through multiple times in one season, that’s where you’ll definitely see a correlation.”

Insure.com’s survey, looking at rates from six of the largest carriers in the country, found that storm-prone states like Louisiana and Oklahoma top the list, while rates in places like Wisconsin and Maine can be as much as two-thirds less.


The phrase “perfect storm” is overused, but in last Friday’s case, it might well be true.

“Nearly every factor meteorologists look for when forecasting severe thunderstorms and tornadoes was in place,” AccuWeather said in a report Monday.

Given how frequent twisters have become in the last year or so, one solution for the industry is to simply get out of the storms’ way.

While it is rare for an insurer to go out of business or fail outright — 23 property and casualty insurers failed from 2008 to 2011, according to the National Conference of Insurance Guaranty Funds. Last May, Alfa Mutual stopped writing policies on older Alabama homes in the face of tornado losses.

For larger insurers wary of a similar fate, that means not putting all of their eggs in one regional basket.

“As the severity of a tornado increases, as you get up to an F5, it’s less about the quality of risk actually and more about the quantity of risk,” said Erik Nikodem, a senior vice president of the AIGunit Lexington Insurance. “We’re paying a lot of attention to the amount of the risk that we have and the aggregation of the risk in a geographic concentration.”

It also means making changes in how risks are assessed and how policies are written. Travelers , a top-10 property insurer, said in late January it is continuing to push underwriting changes to improve its profitability.

“(We) are underwriting for age and quality of roof, reassessing how we factor in the number and type of previous claims, and implementing higher minimum deductibles for weather and non-weather claims,” CEO Jay Fishman said on a conference call with analysts.

Ben Berkowitz


3:56 p.m. EST, March 7, 2012

Eqecat Set to Release 3 Revised Catastrophe Models!

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July 1  |  Eqecat, News  |   Danielle Szeliga

Catastrophe risk modeler Eqecat has scheduled July 15 as the date to release three significant revisions to its Worldcatenterprise 3.16 platform. The updates cover Eqecat’s North Atlantic hurricane model, its Canada earthquake model and its Asia typhoon model.

These updates by Eqecat are the latest in a series of revisions by the cat modeling industry to the models the insurance industry uses to calculate the risks involved in the areas covered by the models. They are essential for predicting the occurrence, strength and potential impact of catastrophic events.

North Atlantic Hurricane Model

Eqecat’s North Atlantic hurricane model covers the U.S. coast from Texas to Maine, as well as Bermuda and the Caribbean. David Smith, senior vice president of Model Development, described the changes as a “high-resolution, detailed time-stepping wind-field model.” It more accurately measures “how hurricanes interact with the land when they come ashore — a more refined measurement of the sea to land transition.”

Smith said that the exposure database provides detailed information on the type of land exposed to hurricanes, the structures built on the land, i.e. how it’s used and how vulnerable specific areas are to hurricanes.

The update has also recalculated event probabilities based on historic records. “It fills in the gaps,” Smith said. As an example, a category 4 hurricane may not have come ashore in a specific location, but “that doesn’t mean that it can’t happen, even if it hasn’t yet.”

The model also takes into account more recent events, focusing on high risk locations, which includes most of Florida, New Orleans and the Galveston area in Texas. “The update for New Orleans takes into account both flood surge and flood defenses,” said Smith. “Our engineers concluded that the defenses are now more robust than they were when Katrina hit, which means that the flood risk is somewhat reduced. It’s also been reduced around Galveston.”

In Florida tougher building codes in high risk areas have somewhat reduced the potential impact from a hurricane. “Newer codes, with decent levels of enforcement, does result in safer buildings,” said Smith.

Another addition to Eqecat’s model analyzes “demand surge,” the increase in the cost of building materials and labor that frequently occur after a storm hits a certain area. Smith noted that “mid-level damage” constitutes the majority impacted by a storm, as the repairs required can’t be made by individuals.

There is some good news as well contained in the model. Smith said that the potential impact from a hurricane in many areas was “slightly less” than previously calculated. He said this is a result of greater understanding of how wind, rain and storm surges may impact a given location, as well as the measures local and federal authorities have taken to decrease the vulnerability of structures located in areas at risk.

While a new and more accurate hurricane model will help property/casualty insurers calculate their exposures, it doesn’t include loss estimates. “The insurance industry runs its own estimates,” said Smith. The exposure databases for each company may vary widely from area to area, depending on the where and what coverage the company may have written in areas exposed to hurricanes. “It’s a distinct model, but in some cases there may be lower [damage and loss] estimates,” said Smith.

The Canada Earthquake Model

Eqecat said its updated Canada earthquake model will incorporate the Canadian Geological Survey’s fourth-generation hazard model. It will also feature a “diverse set of historical and hypothetical events for ‘what-if’ benchmarking.”

An updated insured exposure database will also be released, including policies for earthquake and fire-following perils.

Eqecat updated its U.S. model last year. The update for Canada now means that both countries have a model that is consistent throughout North America. As a major earthquake doesn’t respect borders, both countries face the same level of risk, specifically in the Pacific Northwest, where the San Andreas Fault runs through California and continues north from Cape Mendocino into Canada. The area in the northwestern U.S. and southwestern Canada, known as the “Cascadia subduction zone” is particularly vulnerable to earthquakes.

“The updated model has three main components,” said Smith. The first is the “seismic tectonic,” which describes the faults, the maximum magnitude potentially generated by a major earthquake and the frequency.

The second measures the “attenuation,” or the distance from the center of the earthquake to potentially exposed areas, the depth, the type of quake, and most importantly what the “ground motion” looks like.

The third uses the first two to assess how a given area might be affected by a quake, which Smith said is highly important in calculating the level of the risk. The potential for damage differs greatly between hard rock and soil, according to the Eqecat executive, who said that “it’s urgent to analyze local soil conditions, as buildings are usually located on soil not rock.” The new Eqecat baseline is much closer to where buildings are actually built, he said.

The Asia Typhoon Model

Eqecat’s updated Asia typhoon model covers eight countries from Japan to Malaysia that are exposed to the Pacific version of a hurricane – the typhoon. The area covered is “basin wide,” according to Smith, who noted that a single event frequently impacts more than one country, as a typhoon may move from Japan to Korea or from Taiwan to China.

The model also provides wind-only analysis, as well as wind-and-rainfall-induced flooding, and measurements of storm surge. “It’s the first time it’s been addressed regionally,” said Smith. Eqecat released new models for the region last year, and this update completes that process.

Smith said that losses in the region are caused by both wind and flood, sometimes in tandem. Most property/casualty insurance policies written for the Pacific basin therefore cover both perils. “The new release provides more functionality,” he said, as it “gives further transparency for exposures to both wind and flood.”

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