Oasis’ ‘Open Source’ Cat Model – a User Friendly Game Changer?

By Charles E. Boyle | January 29, 2014

“We’ve been working on the development of an open source framework for catastrophe models for the last three years, but the idea for the project originated well before,” said Trevor Maynard, Head of Lloyd’s Exposure Management and Reinsurance team, in a telephone interview following the launch of Oasis.

He explained that the Oasis concept breaks up catastrophe models into their respective components – hazard, vulnerability, damage and insured loss. Each one is assessed at various levels, and then integrated to give the clearest picture possible for any given set of risks.

“We [Oasis] can use proprietary models and/or academic models,” Maynard said; adding that the latter often have the additional advantage of “being free.” They are chiefly used to assess the “hazard” component, which is the starting point for further analysis.

As detailed on Oasis’ “Framework Component Diagram,” the analysis gathers data for a “Ground-up Loss Module,” which assesses such variables as location, frequency, intensity, etc. It then proceeds to analyze policy variables coverage and creates a “Financial Module” to give the most complete picture possible for any given risk.

Maynard pointed out that, as anyone can contribute data, and that data can be accessed by Oasis members, they have “more choice to simulate different outcomes.” He also noted that the “plug and play feature gives companies across the board access to all of the data available.” He described Oasis as a “community cat model, where everyone speaks the same language.”

In the bulletin announcing the launch Maynard wrote: “Oasis provides a global standard to allow model developers to interact worldwide and for insurers to rapid gain access to their insights. That is very exciting and potentially very important.”

He’s probably correct. The features Oasis offers could well be a game changer as far as the construction and employment of catastrophe models. While the U.S. and Europe have been extensively modeled for natural catastrophes, no one model is perfect. In addition large parts of the world remain unknown territory as far as the catastrophes which threaten them are concerned. As a result the majority of countries, including many classified as “emerging markets,” remain underinsured, or not insured at all.

The development of a global catastrophe model platform, which can produce models tailored to specific risks – large and small – and make them accessible to anybody who needs them, would make it easier for the re/insurance industry to identify and quantify risks in developing countries. That in turn would allow potential investors in those countries to gauge the risks they face, and to seek out the appropriate coverage for them.

“Oasis covers different regions,” Maynard said. “If we don’t have the models, then Oasis can acquire them.” Cat models have become the starting point for businesses and re/insurers to analyze risks and potential coverages. Whether they are proprietary or built by academics, they will serve to increase the take-up rate for policies. This in turn will result on “less worry about disasters and more transfer of risks,” Maynard said.

It may even be possible to construct more accurate liability models for casualty coverage. It would also make establishing more accurate triggers for parametric models easier. “You can look at the uncertainty – explore the range of uncertainty,” Maynard said. He also noted that Oasis’ financial model makes it easier to “know the insurance process.”

Eventually with more members, “maybe even whole industries,” standards will be set that will enable all the interested parties “to talk to, one another, to take the models in as part of their business and to get comfortable with them, and have a direct line to the insurance industry.”

As a Lloyd’s executive, Maynard feels justifiably proud of the work and the expertise that the London market has contributed to building Oasis. “There’s more ‘truth’ in the models,” he said, “and more information can now be shared.”

It may take some time, and there will inevitably be problems along the way, but Oasis does indeed hold out the possibility to be a game changer for the re/insurance industry.

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