Home News IRM outlines detailed framework on capabilities of flood risk-focused models for financial risk carriers

IRM outlines detailed framework on capabilities of flood risk-focused models for financial risk carriers

by Brian Sims
The IRM is actively exploring how risk models can create sustainable value for insurance businesses

The IRM is actively exploring how risk models can create sustainable value for insurance businesses

The Institute of Risk Management (IRM) has published a guidance document produced by its Internal Model Industry Forum (IMIF) exploring advanced uses for insurer internal models in the context of the insurance and reinsurance of flood risk. This guidance has been produced by a work stream of industry practitioners led by IRM member and risk consultant Raphael Borrel together with report author Dr Sebastian Rath (principal insurance risk officer at the NN-Group and a leading specialist in the field).

The work stream is part of a wider programme of research and guidance being developed by the IMIF exploring how risk models can create sustainable value for insurance businesses.

The Solvency II regime has required the creation of sophisticated risk models which assess the inherent ‘riskiness’ of each insurance business and the resulting capital levels required to support solvency. However, there’s still further work to be carried out in order to create real company value from these internal models and ensure they’re absolutely embedded within mainstream business.

Flooding, extreme weather events and global climate change are all high on Government agendas. Indeed, the COP 21 United Nations Conference on Climate Change is currently addressing such issues in Paris so the release of this framework could not have occurred on a more timely basis.

In addition, George Osborne – the Chancellor of the Exchequer – pledged £2 billion of funding to protect 300,000 homes from flooding in his recent Autumn Statement by way of highlighting the serious nature of flood risk.

The insurance and risk industry has a key role to play in raising awareness and knowledge about the impact of these climate-related changes, and in developing risk management and financing solutions designed to improve the resilience of individuals, companies and communities alike. Appropriate, effective and robust modelling of the risks is an important tool in this process.

For its part, the Case Study included within the new report also highlights trends towards pooling of flood risks, including the UK’s Flood Re scheme and a growing focus on strengthening the resilience of cities.

Sophisticated risk models

Jose Morago: chairman of the IRM

Jose Morago: chairman of the IRM

IRM chairman and IMIF founder José Morago told Risk UK: “Insurers increasingly rely upon sophisticated risk models to navigate their way through what is a challenging and ever-changing financial environment. Making sure these models create value in decision-making, that they’re well understood and gain the confidence of Boards of Directors and regulators alike has never been a more demanding or challenging process.”

Morago added: “This Case Study explores the modelling capability requirements and choices that insurers must make to effectively manage flood risk in their portfolios. It also explores how flood risk models can ably support capital models and, ultimately, key capital management decisions such as reinsurance needs that actively underpin the long-term viability of the company and its ability to provide cost-effective coverage.”

The IMIF report’s author Dr Sebastian Rath explained: “This guidance aims to outline insurance risk modelling for a wider audience. Flooding is a key risk driver, with insurance companies and their clients now working together on a global basis to address our response to climate change via catastrophe risk mitigation and risk resilience. Providing accurate, high resolution flood models remains among the most complex of modelling jobs for natural catastrophe modellers and model vendors. I’m delighted to have been able to work with the IRM on sharing my experience through this Case Study.”

*The guidance document is available now from the IRM’s website:  https://www.theirm.org/media/1656861/IMIF-flood-risk-case-study-v10.pdf

Shortlist unveiled for IRM’s Global Risk Awards 2016

No less than 65 international risk professionals and organisations will compete for glory at IRM’s Global Risk Awards 2016, with the shortlist for next year’s prestigious event having just been announced. 30 leading risk management figures judged over 120 entries from across the Americas, Asia, Africa, Europe and the Middle East.

The Global Risk Awards are specifically designed to recognise, showcase and celebrate the world’s best risk management talent.

The IRM’s director of corporate relations Carolyn Williams said: “Competition is always fierce and our judges deliberated long and hard over this year’s entries. We were really impressed with the quality and range of submissions from a diverse cross-section of industry.”

The awards are kindly supported by the City of London, Gallagher Bassett, QBE, Riskconnect, RM Professional, Saudi Aramco and Zurich.

The categories and shortlisted entrants for 2016 are as follows:

Newcomer of the Year

Nicholas Birbara: Transport for London
Neil Keefe: Jaguar Land Rover
Kanaga Devi Shanmugam: Inland Revenue Board of Malaysia
Ti-Pin Teo: Roads and Transport Authority, Dubai
Leigh Weston: Transport for London

Building Risk Management Capability

Larsen & Toubro
Nationwide Building Society
Transport for London

Partnership of the Year

ERM in Banking & Financial Services SIG
Gallagher Bassett

Risk Management Team of the Year

LCH Clearnet
Nationwide Building Society
Scottish Water

Risk Management Professional of the Year

Riyad Abu Mahmoud: Wataniya Mobile
Saurabh Bhootara: Liberty Videocon General Insurance Company
Nadim Choudhary: Arup
Joanna Makomaski: Toronto 2015 Pan Parapan Games
Nathaneal Sterling: Beca

Delivering Value Through Risk Management

Manila Water Company
Nationwide Building Society
Qatar Foundation
Roads and Transport Authority, Dubai
VIA Rail Canada

Innovation Through Technology

International SOS
Network Rail

Excellence in the Face of Adversity

Leicester City Council
Nigerian Aviation Handling Company plc
Roy Hill Ltd
University of Newcastle

Risk Management Consultancy of the Year


Risk Management Service Provider of the Year

CRMS Indonesia
Global Risk Consultants
Reliance General Insurance
Thomson Reuters

Cyber Risk Strategy of the Year

Cyber Risk International
Network Rail
Yorkshire Building Society Group

Managing Risk Across Boundaries

Global Film Solutions
International SOS
Larsen & Toubro
Plan International

Risk Management Solution of the Year

Agiliance Inc
LinkResQ Ltd CalQRisk
Covalent Software
Ventiv Technology
Zurich Insurance

Risk Management Journalism

Field Gibson Media
Strategic Risk Europe

*Sponsorship opportunities and tables for the gala dinner are available. Please send an e-mail to: clementina.christopher@theirm.org if you would like further information

ORIC International publishes Operational Risk Landscape Report for 2014

The third annual edition of ORIC International’s much-respected Operational Risk Landscape report once again provides a unique insight into the loss profile of the insurance industry, this time covering 2014.

ORIC International’s members, who comprise over 40 of the UK’s leading insurers, submitted 884 loss events to the consortium dataset during 2014 with a total value of £301 million. This is the third highest gross loss amount in the consortium’s history, and represents a 26% increase on the average total annual loss amount over that ten-year period as well as a 22% increase over the previous five years (2009-2013).

However, year-on-year comparisons reveal members also recorded lower average loss figures in 2014 than in 2013.

Losses by business function outlined on page ten of the newly-issued report reveal a high level of consistency between 2014 and the previous five years, with Customer Service/Policy Administration recording the highest percentage (over 40%) of the total number of losses reported across 2014. This suggests it should be an ongoing area of focus for insurers as they look to reduce their operational risk exposure.

Over the course of 2014, there was a noticeable increase in the proportion of events being submitted from Claims, IT and Underwriting.

Sales and Distribution was the only business function that saw a significant decline in submitted events.

When looking in detail at severity, Accounting/Finance witnessed the largest increase and by a substantial margin (43.4% compared to 17.1% on average), with IT being the only other increase over the corresponding 2009-2013 average figure.

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