Clients looking to be more involved to understand how Cat events can affect their books of business: AIR Worldwide

An evolution has occurred in the catastrophe modelling market in which clients are looking to be more involved so that they can better understand and own their risk, Rob Newbold, a senior vice president with AIR Worldwide, told Canadian Underwriter during a company event in downtown Toronto Tuesday.

For many years, the system involved modellers developing models and “the market would essentially trust or absorb what it is we’re giving,” Newbold, SVP, business development and consulting & client services, said during the 2015 Toronto Seminar hosted by risk modelling software and consulting services company, AIR Worldwide, a Verisk Analytics business.

In recent years, however, “you’ve see people investing in building their own research departments and really wanting to get into that granular data to understand what it means specifically for their books of business,” he reported.

Not all insurers write the same risks and not all insurers have the same coverages, Newbold pointed out. That being the case, users “really want to take the time to understand what a model means for [them].”

Having a firm understanding is key in light of the ongoing challenges in Canada’s property and casualty insurance industry. Kunal Joarder, manager of client relations for AIR Worldwide, told attendees he expects the challenging and competitive conditions in Canada’s p&c industry will continue for some time.

With influences such as the continuing low interest rate and regulatory demands, Joarder said these “obviously adversely affect the industry’s profit margins and growth potential.”

But there is also the challenge of potential Cat losses. Citing a recent KPMG survey, Joarder noted that for the 170 insurer, broker and service provider respondents, Cat loss events were among the top five worries the industry faces.

Among potential costs are those related to winter storms. Canada is clearly no stranger to harsh winters, Joarder said, pointing out that over the last 35 years, there have been 30 Cat events that can be attributed to winter storms.

There are several challenges to get a complete picture when it comes to winter storms, he explained, including that there is not a lot of data that describes these events, the time period is short, and the claims history is not very good.

In July, AIR Worldwide announced it is expanding its suite of models for Canada, including a new winter storm model.

Related: AIR Worldwide releases winter storm, tropical cyclone models for Canada

Beyond winter storms, however, “any discussion on catastrophe losses in Canada has to really start with flood,” Joarder emphasized. “The catastrophe loss events that happened in recent years, those were really quite an expensive education for all of us,” he told attendees.

Pointing out that “Canada is getting more and more moist,” Joarder cited the report a few years back by Gordon McBean that found the average yearly rainfall in Canada has increased by 12% in the past 60 years and that there are 20 additional days of rainfall compared to the 1950s.

Companies are interested in understanding the risks associated with their specific books of business, Newbold (pictured left) suggested. “To the extent that you have the capability to understand models,” he noted, perhaps differentiating oneself from others, “then that will give you an advantage in the market and understanding the models and model output is one way to do that.”

Related: AIR Worldwide, security risk firms collaborate on advanced cyber model

Newbold noted that cyber is the new hot issue. In September, AIR Worldwide, BitSight Technologies and Risk Based Security (RBS) announced the companies are working together to build an advanced cyber risk model.

Newbold reported that AIR Worldwide receives a lot of requests for Canadian flood modelling and Canadian wildfire modelling, “which are not perils we currently have. Marine and energy lines of business are coverages we’re currently not modelling and we’re looking to build up that suite,” he added.