With premiums set to rise a further 8% by 2017, emerging markets continue to represent the fastest growth areas for global insurers and reinsurers. Increasing insurance penetration, burgeoning middle class populations, and global supply chains are all key drivers of market growth in South America, Asia, Africa and the Middle East.
With rapidly increasing exposure, there is the urgent requirement for greater risk management, particularly to weather related perils such as flooding. However, there remain industry challenges in modelling catastrophe risk in emerging markets, including; a scarcity of probabilistic models, coarse exposure data and the high costs of catastrophe risk management service.
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This short presentation about JBA Risk Management was filmed in The Old Library at Lloyd's in London.
Presented by Iain Willis, Managing Director of JBA Risk Management Pte Ltd
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JBA has mapped flood throughout the world. Currently in the Asia Pacific region, 30m resolution fluvial and pluvial maps are available for every country, based on a consistent cutting edge methodology. For insurers who have a geographic information system, these maps offer a first-class tool to assist with underwriting decisions. To complement the maps, a dataset of defended areas has been developed. The dataset comprises polygons showing the areas on the floodplain that benefit from river flood defences.
Where a re/insurer may have accumulated assets in one region, it is important to explore how exposed the client might be to a single event, given that the insured loss potential may be greatly increased. This can be based on either recreating historic events or, providing a scenario of what could happen. With this in mind, JBA has developed hypothetical flood footprints in emerging markets to help clients assess this exposure. For example, the JBA Pearl River Delta scenario model is available at 30m resolution in GIS format to look at the impact of a 1-in-200-year flood event in the highly industrialised Guangdong province of China. Clients can assess their overall accumulation of risks within the hypothetical extent as well as the level of potential flooding per grid cell.
HAZ identify areas that are likely to flood concurrently so they are useful for calculating cumulative flood exposures. Traditionally, administrative boundaries such as postcodes or CRESTA zones would be used for this type of analysis, but these share no relationship with rivers or flooding. HAZ are hydrologically sensible as they are based on river catchment boundaries. They enable a consistent method of visualising flood risk, identifying flood hotspots and defining underwriting caps. HAZ layers are provided at two levels of detail, based on river catchment area thresholds.
Probabilistic models provide the most effective method of fully capturing an insurer’s/reinsurer’s portfolio exposure to a natural peril. Catastrophe models can provide guidance on appropriate re/insurance pricing as well as giving the client a view of their capital exposure at key return periods. JBA has developed models to allow insurance data to be modelled, at numerous spatial levels, including zip code, province, and lat/long. Running on JBA’s modelling platform, JCalf®, Monte Carlo sampling is undertaken to fully quantify the relative uncertainty of financial loss. JBA has developed cat models covering key emerging markets such as Thailand, Malaysia, India, and Sri Lanka.Flood Event Sets
As part of a Global Flood Event Set, individual countries in Asia Pacific can be licensed individually. The event sets capture the spatial and temporal patterns of extreme precipitation and river flood events. They cover a wide range of possible events in their natural frequencies, including those caused by hurricanes. The event sets have been created using advanced statistical analysis of historical precipitation, river and hurricane track data to generate an extensive set of flood events at observation points around each country.
Event sets are available now for Guam, Indonesia, Malaysia, Palau, Papua New Guinea, Philippines, Singapore, Solomon Islands, Timore-Leste and Brunei. The following countries will be available soon: China, Japan, Mongolia, North Korea, South Korea, Taiwan, Australia, Fiji, New Caledonia, New Zealand, Samoa, Vanuatu, Cambodia, Laos, Myanmar, Thailand, Vietnam, Bangladesh, Bhutan, India, Nepal, Pakistan, Sri Lanka.
There is no substitute for the precise geocoding of exposure data. Unfortunately, in many emerging markets, this information is not available to insurers. In this circumstance, re/insurers may be required to use alternative approaches, such as precautionary loading of insurance lines or cautious Probable Maximum Loss (PML) assumptions. Such practice may result in either over or underestimating the realistic flood risk exposure in many emerging market economies. To help provide a better assessment of potential flood risk exposure, JBA has devised FloodStat™. This dataset provides a statistical overview of the relative flood risk at various levels of aggregation and for multiple return periods. Aggregation levels include CRESTA zone and country-specific zip code as well as JBA’s Hydrological Accumulation Zones (HAZ).
FloodStat™ is based on underlying data from JBA’s high resolution flood maps and is available globally. Users are able to assess their relative aggregate exposure against key flood risk metrics such as the maximum and minimum possible depth of flooding as well as the proportion of the area flooded.
In many circumstances, reinsurers in emerging markets lack detailed location data on their insured exposure. Because of this, they are often forced to make high level assumptions about their level of potential exposure that can significantly under or over-represent the real flood risk. For this very purpose, JBA has developed an Insured Loss Database (ILD).
Re/insurers can use the ILD to provide key catastrophe loss information about the entire insurance market. With knowledge of their own proportional share of that insured market, clients are able to baseline their potential market exposure, as well as identify low risk areas where more premium could be written without impacting their capital exposure. The ILD includes financial loss information by line of business on Average Annual Loss (AAL), Exceedance Probability (EP), and a 10,000 Year Loss Table (YLT) and is provided at various geographic levels. ILDs are delivered in database format and are available for Thailand, Malaysia, Sri Lanka and India.
Annual damage ratio data are available on request for any country in the region. They provide the expected annualised cost of flood damage at a specific location, expressed as a proportion of the sum insured. The data are derived by combining flood hazard maps with a location-specific event set, information on the built environment and tailored vulnerability functions. Statistical analysis of these data generates the damage ratio.
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