RMS Webinar: Innovations/Challenges for the CEE insurers against NatCat

1 April 2021 — team
The existing NatCat protection gap in the CEE and the consistent solutions that are now available to bring more CAT modelling at the point of underwriting made the main topics at the "Innovations and Challenges in managing Natural Catastrophe risks" organized by RMS in association with XPRIMM on 30 March.

The presentations were focused on natural risks in the CEE, which would be the new solutions to manage natural catastrophe risks in the CEE and how do we use catastrophe models to measure current and future risks.

According to Daniela GHETU, Editorial Director at XPRIMM Publications "Both information about losses due to natural hazards and on the insurance coverage is scarce and sometimes contradictory. While on the losses side it depends on different institutions, on the insurance side, NatCat coverage is provided as an addition to the regular fire insurance and in many countries the authorities are not actually monitoring or providing information on how much the property insurance is covering also NatCat risks."

Floods and earthquake are the most important risks affecting the CEE region. Yet, the last years have seen several important draught episodes, as well as the occurrence of emergent risks as wildfires or even tornadoes, unprecedented in the EEC, until about a decade ago.

She also added: "According to the European Environment Agency statistics, in the last 40 years we have seen total losses of about EUR 58 billion in the region, out of which only about 10% were insured losses. The low insurance coverage degree was responsible for this situation." Across the region, the NatCat insurance coverage degree of residential buildings is quite uneven: while markets as Poland, Czechia, Hungary, Slovakia or Slovenia show values of over 50% for this indicator, in Romania only 20% of homes are insured and the percentage goes down much more in the Western Balkans.

Laurent Marescot, Senior Director, Markets and Products Expert, EMEA, RMS Zurich discussed about different models and solutions available in order to manage the reinsurance portfolio. He stated: "It is very important to understand that the modelling comes actually from taking into account the critical features for flood. For it is very important to manage correlations between territories. A large proportion of correlation is actually driven not by the hydrology, but by the meteorology, the precipitation. So, it is important to capture the flood correlation in a proper way in your model, otherwise you may miss 40-50% of your losses which are happening outside the model."

The webinar presented also an overview of how model can be used not only to estimate the risk, but also to answer questions such as: what is the impact of mitigation measures on losses or how is climate change affecting future losses. Arnaud Casteran, Consultant, Risk Advisor, RMS commented: "The best way to get started is to consider the general framework that catastrophe models are built on. Modeling the economic impact climate change has on catastrophe risks has been a research and development for the last 3 years at RMS and we already announced the release of climate change models for June 2021. The global climate models are not efficient to characterize a regional effects and lookout climate specificize. In that regards, regional climate models take results from global model and don't scale these models to capture more local effects. In the same way that global climate models are quite uncertain, the results from individual regional models can differ sometimes even greatly for more complex hazards."

In conclusion, the advance CAT models can deliver the analytics we need in order to address tomorrow's challenges around climate change risk. They also enable more informed discussions between private and public entities.

More about risk management solutions can be found on the website: www.rms.com and by visiting the event's on demand page.

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