Risk Management Solutions has completed work on a model dealing with Australia’s three greatest perils. RMS announced the phase one release of its “Australia Severe Convective Storm Model®, covering damage from hailstorm, water ingress, downburst winds, and tornadoes.”
These storms have been the largest driver of catastrophe loss in Australia over the past 40 years due to their high frequency. RMS pointed out that “while not as damaging as most severe cyclones, severe convective storms are capable of generating losses in the billions of dollars, as demonstrated by the 1999 Sydney Hailstorm, which would cause over AU$ 3 billion [US $2.7 billion] of insured loss if it were to reoccur today.”
Combined with RMS’ Australia cyclone and earthquake models, the new model offers a complete solution to quantifying risk for the country’s three greatest perils. RMS Director Domenico del Re noted that “having a comprehensive solution for cyclone, earthquake and severe convective storms on a single platform not only allows companies to closely examine what’s driving their risk, but manage their portfolio more efficiently and demonstrate robust and consistent risk management practices.
As well as assessing the risk of the storm sub-perils together, companies can use the new model to differentiate losses driven by hail, which is of particular concern for motor insurance. A detailed inventory of building stock based on the expertise of local structural engineers has also been incorporated into the model, enabling insurers and reinsurers to fill gaps in their exposure data and generate more detailed damage estimates.
“Regional trends in building characteristics such as construction and roof type can help to plug the holes in companies’ data and lead to a better understanding of risk where detailed information is not available,” del Re continued.
Reinsurers quoting low-layer structures, which are common in the Australian market and could be impacted by even a moderate severe convective storm, will be able to use the new model to complement historical storm loss data to optimize their treaty pricing and diversification strategies.
The first phase of the Australia Severe Convective Storm Model®, which has been released with the latest version of RMS’ risk management software platform, RiskLink® 10.0, extends across the Greater Sydney area. Historically, the region accounts for 65 percent of all Australia severe convective storm losses. Over the next several years, RMS will develop and roll out phase two of the model to include other key regions susceptible to severe convective storm damage.
Source: Risk Management Solutions
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