The average frequency of a major flood in Malaysia is once every three years though major insurance losses have been less frequent. However, due to increased exposure concentrations and evolving urban environments, these historical events are poor indicators of future loss potential. Impact Forecasting conducted field studies that indicated large accumulations from high value commercial and industrial properties in the flood plains. This data was used as the basis for the new model.
Similarly, Asian megacities present a challenge in accurately assessing insured flood risk due to large concentrations of risk. Jakarta, with its continual history of flooding, demonstrated the need for a flood model to fully understand the potential financial implications. Impact Forecasting worked with Jakarta City Government to take into account land subsidence and recent mitigation works when developing the probabilistic tool.
Both models have the ability to analyse portfolios with residential, commercial and industrial estate lines of business and are available on the ELEMENTS loss calculation platform. This enables insurers to achieve more accurate results by customising the components based on loss history. The transparency of the software platform enables every step of the calculation process to be clearly defined to stakeholders, while helping to quantify uncertainty.
Adityam Krovvidi, Head of Impact Forecasting in Asia, said: “Ever since the Thai floods of 2011, the re/insurance industry has been keen to grasp the implications of this peril throughout the Asia region. Now, coupled with other factors such as increased urbanisation and detariffication in Malaysia, we have addressed these challenges with models that can fulfil regulatory and rating agency requirements – in addition to the more traditional use of driving accurate reinsurance purchase.”
Brad Weir, Head of Aon Benfield Analytics for Asia, added: “Malaysia’s costliest economic loss of USD580 million came from the December 2014 flood while an event in January 2013 left Jakarta with economic damages around USD3.4 billion. Hence, we have seen how flood events have the ability to impact the industry from both a severity and frequency perspective. Having a robust solution to understand and remove the uncertainty of its potential is crucial in supporting risk management decisions. Our clients are able to access and leverage the significant investment made by Impact Forecasting through these high resolution flood models to support effective reinsurance purchasing, individual risk rating and the development of sound underwriting strategies.”
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