Assessing future flood risk globally: Podcast with InsTech London

JBA’s Climate Change Commercial Lead, Judith Ellison spoke to InsTech London’s CEO Matthew Grant about assessing future flood risk globally, specifically with climate change in mind. She talks about JBA’s ability to model flood in a changing climate, helping companies with regulatory requirements, how people are accessing our data, and more.

Listen to it below, or read the Q&A.

MATTHEW: YOU'VE WORKED FOR A REINSURANCE BROKER FOR SIX YEARS; YOU Spent 11 YEARS AT THE LLOYD’S SYNDICATE. YOU KNOW MODELLING AND ANALYTICS VERY WELL. ANYTHING ELSE I'VE MISSED OUT ON IN YOUR CAREER HISTORY?

Judith: Those would be the main things and then prior to that I worked for Airbus, who provide elevation data to that industry, which can be used in the flood models that we produce.

MATTHEW: CAN YOU GIVE US SOME BACKGROUND ON JBA?

Judith: We're a global leader in flood risk science, otherwise known as the Flood People, and we have been providing data to the industry for over 10 years.

MATTHEW: HOW IS YOUR EXPANSION INTO THE UNITED STATES GOING?

Judith: It's going really well. We've increased the footprint of our US clients and they're using both US data and our global data. And we have 5m resolution data in the US and also a US probabilistic model. Also, we've entered into a collaboration with Applied Research Associates, otherwise known as ARA and we are providing a combined wind and flood model for the US.

MATTHEW: IN TERMS OF WHAT WE'RE GOING TO BE FOCUSING ON TODAY, WHAT PARTICULAR TOPIC SHOULD PEOPLE BE EXPECTING TO HEAR ABOUT?

Judith: We’ll be focusing on how JBA will be able to model flood risk anywhere today and into the future.

MATTHEW: THERE ARE DIFFERENT PERSPECTIVES ON THE FUTURE. WHAT'S YOUR TIME HORIZON?

Judith: Starting with an intermediate scenario - a Representative Concentration Pathway (RCP) of 4.5 with a 2050 time horizon. But that's just the first point and we intend to roll out additional scenarios.

MATTHEW: ARE YOU ALSO LOOKING A LITTLE BIT MORE NEAR TERM SO THAT PEOPLE ARE MAKING DECISIONS ABOUT THE UNDERWRITING RISKS THEY'RE DOING IN ADDITION TO THE REGULATORY REQUIREMENTS, BUT ALSO BUSINESS DECISIONS BASED UPON MORE NEAR-TERM FUTURE VIEWS OF FLOOD?

Judith: We're looking at three different time horizons, short, medium, and long term - 2030, 2050, and 2100. And then also in terms of scenarios, we need at least one moderate or realistic warming scenario. So, I've already mentioned 4.5, but then also more extreme scenarios such as RCP 8.5 to get a good broad view of all the different potential outcomes that may arrive.

MATTHEW: IT'S HARD ENOUGH TO MODEL FLOOD WITH A STABLE BASELINE OF LOSSES, HOW DO YOU ADD IN THAT EXTRA DIMENSION OF THE UNCERTAINTY AS YOU LOOK FORWARD TO HAVING SOMETHING CREDIBLE ENOUGH TO MAKE DECISIONS AROUND AS OPPOSED TO SO MUCH UNCERTAINTY THAT YOU CAN'T REALLY BE CONFIDENT IN THE OUTCOME?

Judith: Understanding the uncertainty even in our existing model today is already challenging before we start to consider the future climate. It's hard because we don't know what the future is going to bring. But it's something that we're certainly thinking about and something that we want to work with our clients on and to educate them on how to think about uncertainty as well.

And one way of doing that is in the first instance to think about the different scenarios and time horizons and look at a range of scenarios and understand different viewpoints because we don't know what will come. And then another way is, that we have so much climate information at our fingertips, so many different climate models from which to take that data, so, it's looking at the different outcomes that they can provide and then considering those outcomes to give you a good view of what all those uncertainties bounded could look like and relate that to the baseline view as well.

MATTHEW: ARE THERE ANY EXAMPLES YOU CAN GIVE THAT HELP BRING TO LIGHT WHAT IT IS YOU'RE DOING AT JBA TO HELP PEOPLE WITH THE REGULATORY REQUIREMENTS?

Judith: Yes, I think a good example is the support we provided recently to the Bank of England CBES (Climate Biennial Exploratory Scenario), but ultimately, regulatory requirements are expanding and there are at least 38 central banks that are now committed to running these exercises. And not only that but there's a need to report on sustainability as well – so, you'll hear lots of acronyms like ESG (Environmental, Social and Governance), TCFD (Task Force on Climate-related Financial Disclosures), and IFRS (International Financial Reporting Standards).

This reporting has an impact beyond reinsurance as well. So, we're thinking about banks and asset managers, and we enable our clients to respond to stress testing and climate reporting using our models. For instance, they can look at changes to average annual losses for different scenarios.

MATTHEW: HOW ARE JBA HELPING INSURANCE COMPANIES?

Judith: We've helped a number of insurers, so for instance, one of those was Aviva. Then also from the non-insurance sector, we've been working with Nationwide, understanding mortgage decisions and how they may be impacted by future warming.

MATTHEW: THERE’S A LOT OF INTEREST FROM INSURERS IN BEING ABLE TO PRICE MODEL AND REPORT ON THEIR FLOOD RISK. WHAT IS DRIVING THAT GIVEN THAT IN A SENSE THE GOVERNMENT IS THERE TO SUPPORT THE Losses?

Judith: I think knowing that there is the intent for Flood Re to stop providing support in 2039 and that's currently being considered amongst all our insurers, so what happens then? So, the data that we provide to the industry is being used to consider what decisions they might need to make, do they need to increase pricing, or do they need to pull out of some risk or even be able to cover more risk because the floods may be decreasing in some areas.

MATTHEW: HOW ARE PEOPLE GETTING ACCESS TO THE INFORMATION YOU'RE PROVIDING?

Judith: We can provide the data directly to clients or via trusted partners, and they can provide additional services such as exposure, data cleansing, geocoding, analysis, and software. And our cat models themselves, they're underpinned by the Oasis Loss Modelling Framework, which makes them more accessible to the insurance business. And, besides that, just in terms of data provision, we provide bespoke consultancy services.

MATTHEW: CAN YOU TALK A LITTLE BIT ABOUT WHAT WOULD BE AN EXAMPLE OF WHERE PEOPLE ARE ASKING YOU FOR HELP ON HOW TO IMPLEMENT THE MODELS, OR PARTICULARLY START TO LOOK AT THE FUTURE STATE WHERE THERE'S EVEN MORE UNCERTAINTY ABOUT CLIMATE AND HOW DO YOU HELP THEM SOLVE THE PROBLEMS THEY'VE GOT?

Judith: I mentioned that we partnered with several clients on consultancy projects across the globe and I'll briefly describe one of those. So that's working with the WTW (Willis Towers Watson) Climate and Resilience Hub - and we mentioned this project at a recent JBA Lloyd’s event, which was specifically focused on climate change.

This project was to develop a regional approach to flood hazard assessment in Southeast Asia and the outcome provides a clear example of how modelling conditioned by regional parameters can be used to inform asset owners and managers on how best to optimise risk reduction and risk transfer strategy.

MATTHEW: WHAT DO YOU EXPECT US TO BE TALKING ABOUT WHEN WE COME BACK TOGETHER AGAIN WITH YOU OR ONE OF YOUR COLLEAGUES TO REVIEW WHAT’S HAPPENING?

Judith: Climate change will continue to feature very highly in our future development. I think we've moved on dramatically with our climate developments, but in a year's time, things will have moved on again.

The data, and the methods, will continue to improve, and I think we'll see greater standardisation across the industry. So, there's no doubt that when it comes to the availability of data and models, perils such as floods will support and encourage increased resilience.

MATTHEW: WILL WE SEE MORE STANDARDISATION IN THE NEXT 12 MONTHS?

Judith: Yes, I think it's the methodologies that we're using, we're more familiar with them. When we started this 5-10 years ago, it was all brand new, and some companies have only been looking at this in the last one to two years. And you'll see that everybody is employing additional climate change members of the team. At JBA, we've probably tripled the number of people working on climate change.

So, I think the fact that there's so much more knowledge, awareness and discussion working with partners within the industry, but also in academia, means that we're improving and coming up with more standard approaches to tackle this.

MATTHEW: WE'VE TALKED ABOUT SOME OF THE CHALLENGES OF FLOOD MODELLING. WHAT ARE YOU DOING TO OVERCOME THOSE CHALLENGES?

Judith: I think one of those that I would probably focus on is the multiple demands from different clients and sectors, and this means there's a requirement from many different climate views. You've got companies needing to report to many different regulators, and they're each coming with their own requirements as well, and then they want to understand their own view of risk.

So, essentially in terms of the scenarios and time horizons that we need to look at, one size just doesn't fit all - and of course, that's very challenging. So, our way of tackling this problem is to invest in automation at compute capacity and develop innovative technology.

MATTHEW: WHAT CAN YOU OFFER TO PEOPLE WHO WANT TO LEARN MORE ABOUT THE TOPICS WE'VE BEEN TALKING ABOUT OR UNDERSTAND HOW TO OVERCOME SOME OF THEIR CHALLENGES?

Judith: I've been there, I've worked in the industry, I understand the various requirements that are needed in regulatory reporting, etc. It's very time-consuming, but also then working at JBA and building out these models, it's been very challenging. So, I feel your pain and if you're interested, please contact me on LinkedIn.