Answers to the key questions raised by customers regarding Ambiental’s Catastrophe Models.
Catastrophe modelling is a method for developing a detailed understanding of risk and calculating potential losses through catastrophic events. It is used by the (re)insurance industry and governments internationally as a tool for analysing the impacts of extreme events. It assists with preparing strategies which ensure that adequate capital is allocated in preparation for when they occur. Ambiental provides a range of data and analytical products which includes Flood catastrophe models, such as the industry leading Australia FloodCat™. This article provides useful insight into the field of Cat Modelling and gives answers to some of the common questions our customers have raised.
Why does my business need a CAT model?
Severe catastrophic events typically occur with low frequency. Historic records are simply not extensive enough to represent every possible hazard scenario which means that extreme events may not be on record. This means that by solely relying on claims data you may not fully understand risk. CAT models overcome this problem by simulating hundreds of thousands of events to understand the full range and frequency of catastrophic events and their probability of occurrence.
What does a better CAT model mean to my business – i.e. in terms of commercial outcomes?
Through using the most current, complete and detailed models uncertainty is reduced and confidence is increased. All models must make assumptions and some CAT models lack the level of detail required to reliably represent the real world. Over-simplification of hazard and vulnerability data can drastically reduce the effectiveness of a model. Historically some models have massively underestimated loss exposure.
What can the model be used for?
- Reinsurance purchasing – evaluate reinsurance purchases and improve efficiency.
- Portfolio optimisation –understand risk drivers and identify areas for growth or retraction.
- Pricing – inform portfolio pricing decisions for policies and programs.
- Underwriting – use outputs for risk selection and pricing at point of sale.
- Claims – plan for deployment of resources following a catastrophic event.
What commercial and analytical limitations exist with the common CAT models in the market already?
Some models are limited in the quality of the hazard data used and the level of geographic precision they are able to offer. Ambiental’s proposition as experts in flood hazard modelling is to deliver industry leading high quality flood data at a property level of precision.
What key things make a CAT model good and how does FloodCat™ deliver against each of these?
- Detailed hazard data – Flood hazard is discontinuous and highly location specific. Only through using high precision terrain and flow inputs can a realistic model be produced which shows the extent and depth of flooding at any given location.
- Extensive event catalogue – Ambiental model 10,000 years of synthetic data for each flood peril which generates well over one hundred thousand discrete events, thereby ensuring model stability and allowing for very extreme events to occur.
- Reliable vulnerability curves – the damageability of a building through flooding will vary based on construction type, building usage and the contents within it. By using industry recognised academic research Ambiental have produced a dependable vulnerability module.
What – if anything – has changed to make FloodCat™ either more necessary [market changes] or so much better [technical advances]?
In recent years events of unprecedented scale and frequency have highlighted the need for a fuller view of risk to maintain solvency and compliance. The tendency to locate high value assets in flood prone areas has been a key driver for insurers to better understand exposure to flood risk. CAT models are becoming an industry standard tool for decision making. FloodCat™ leverages the benefits of improved software, more powerful computing hardware and superior hazard data to deliver a leading edge CAT Model.
What are the differences between FloodCat™ and others on the market?
With FloodCat™ analysis of flood hazard is possible at a property specific level of geographic resolution. Ambiental use a unique proprietary probabilistic approach when generating event footprints whereby weather events are linked back to deterministically generated flood maps. This approach is favoured due to Ambiental’s proven accuracy in hazard mapping and ensures data consistency with Ambiental’s flood map products.
What vulnerability information is contained within the model?
The model contains detailed vulnerability curves representing damageability for various types of building stock. These were produced through extensive research. Commercial and residential curves are provided which can be further parameterised through using additional modifiers. Vulnerability information can either be bundled into the standard model, purchased as standalone or excluded from the package. FloodCat™ can also be run using a customer’s own vulnerability data.
How has the model been validated?
Historic events and claims provide a good basis for understanding if model outputs are realistic and accurate. Analysis of historic flood locations and the insured losses which resulted is a key way of validating the model. Furthermore, various tests and studies have been undertaken to check the model for event set stability and parameter sensitivity.
What do I need to be able to use the model?
FloodCat™ is currently available in raw data formats, Oasis format and ELEMENTS format. The model is also soon to be released in other formats. In order to use the model in ELEMENTS you must be a licenced customer of Aon Benfield Impact Forecasting and hold a licenced copy of MS SQL Server (2008 r2 and above).
How can I find out more information?
You can contact Ambiental with any questions you may have and to discuss licencing and pricing options. For further guidance on Cat Modelling we also recommend downloading this useful guide produced by Lloyd’s Market Association.
About the Author
Paul Drury is the GIS Data Manager at Ambiental. His role includes project management of production operations and reporting back to stakeholders. He also oversees the preparation, integration and quality assurance checking of data assets. Paul is an expert in GIS and data analysis with a developed understanding of the environmental data industry and underlying technical concepts. He has a BSc (hons) in Environmental Sciences from the University of Brighton.
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