Munich Re Expert Tells IUMI Cat Models a Must for Marine Risks

Marine underwriters at the International Union of Marine Insurance (IUMI) conference in London heard from Hjortur Thrainsson, Munich Re’s modeling expert, that even a catastrophe model that is wrong is better than no model at all.

He was speaking at a special session at the conference which was moderated by Dieter Berg member of the IUMI Executive Committee.

According to the IUMI’s bulletin, Thrainsson explained that the “biggest issue for the marine market when it came to probabilistic modeling was the fact that many of its risks were moveable, while the property risks, which are static, made it easier to assess the vulnerability hull and cargo risks were transient and as such it was difficult to look at true exposures and the assets may or may not be in the affected area.”

He noted that the marine market has been hit by a series of major losses culminating in Superstorm Sandy, the biggest catastrophe loss in the history of the International Union of Marine Insurance (IUMI)market.

Thrainsson said: “Using such models I believe will be of great benefit to the marine insurance community. The models are a combination of science and fiction; it is like some Hollywood movies the models are based on real events but is not the whole truth.”

Although by their nature models cannot predict the future, they are nonetheless “of huge benefit when it comes to the ability to arrive at the right price for the risk and the understanding of the potential accumulations from a major catastrophe.”

Thrainsson pointed out that the biggest issue form the marine market remains not the earthquake or the windstorm risk but the flood or storm surge which accompanied such events.

“I would say having a model which is wrong is better than having no model at all,” he explained. “With no model you are flying blind. With a model, even if it is wrong, you have your eyes open and at least you can see something.”
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Source: International Union of Marine Insurance (IUMI)