Mark Weatherhead on the impact of Solvency Two on risk models

12 Jul 2016

The Head of Model Development at Guy Carpenter, co-presented “What current exposure data doesn't tell us" at the Catastrophe Knowledge Exchange event at the Swiss Re Centre for Global Dialogue.

Click here to find out more about the event.

View Mark Weatherhead and Balz Grollimund's presentation slides here

Read the text version of Mark Weatherhead’s interview here:

There's always the chance that there's some unmodelled peril out there, or unmodelled event, but I think even so, we're definitely in a much better position now, than we were during Katrina's time. I attribute it to a much higher use of Cat models and a greater understanding about things, such as Solvency II, forcing to a degree companies to take this into account. Also, I think there's just a bigger acceptance that there are big events out there and that we need to take account for them, even if we don't have a specific model.

What I find challenging about natcat models is that they are simplified abstractions of reality, a simplified view on reality, that's based on a lot of assumptions that it makes, scientific assumptions. Often we don't know in detail what those assumptions are. Natcat models could be improved through improved standards around exposure data especially and also just increased transparency on their underlying assumptions. For example, if somebody was building was a wind model exactly how they're translating between scientific data on wind speeds to what actually goes into the model, the models themselves are derived products and all you see as a user is the derived product, not the underlying basis for that model.

For the risks, where we do have analytics and data. The areas that are underinsured, I believe, are California earthquake and Japan earthquake and I think the reason for that is that if the insurers were to pay the true value or the true cost of insurance, it's prohibitively expensive. They're just very high risk areas and for the average homeowner, it's too much to pay.”

Click below to read the themes from the first Catastrophe Knowledge Exchange:

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