New capital & risk modelling technology = new opportunities: Hemant Shah, RMS

by Artemis on April 28, 2015

The combination of new sources of risk and reinsurance capital, from alternative providers such as the capital markets, alongside innovations in risk modelling technology will equal new opportunities for all in insurance, reinsurance and ILS, according to RMS CEO Hemant Shah.

Speaking at the RMS Exceedance 2015 conference held in Miami today, Shah explained that the development of new and innovative ways to analyse, assess and quantify risks will result in new opportunities for deploying some of the excess capital that exists in the re/insurance industry.

Shah revealed that RMS is back on track with its new risk modelling platform, RMS(one), shared a release plan for the product and explained how the new platform’s advanced risk analytics hopes to help insurers, reinsurers and insurance-linked securities (ILS) players manage exposure and risk, while helping make capital deployment more informed.

“We understand that for you to be competitive, you need to be more dynamic and efficient in how you deploy capital and underwrite business. And to remain relevant in a rapidly changing world, we know that you need to be more innovative and agile, to identify and pursue new business opportunities,” Hemant Shah told the audience of 800+ attendees.

Catastrophe risk modelling is clearly a core of the RMS world and Shah explained how the company aims to help re/insurers and ILS players to become more efficient in their understanding and underwriting of risk.

“We’re going to offer you new ways of looking at cat risk. Not only to help you to better underwrite and manage the risks you already have, but to give you new tools to innovate and craft new forms of coverage that you can provide to your customers to expand your relevance and grow your business.”

New opportunities is a key theme, with initiatives underway at RMS to look at how new insurance coverage lines can be created, with the support of risk modelling technology, in order to provide opportunities for the capital in the industry to be put to work and to continue expanding.

For ILS investors this is good news, as many of the initiatives will be well-suited to the ILS understanding of the world, involving indices and event specific parameters which are understood and transparent, and so attractive to investor driven reinsurance markets.

“The influx of new capital into the industry provides us with opportunities to innovate together to extend coverage to the uninsured, which is the dominant signal in our global economy today,” Shah continued, referring to the protection gap that exists today especially in some peak catastrophe zones, both in emerging and also mature markets.

And RMS hopes to help to create new products to cover the interconnected risks that exist in a developed economy, including business interruption and supply chain type exposures, which again can help to create new risk for the insurance, reinsurance and ILS markets to absorb.

“By collaborating with you we can contribute our own modelling driven insights to help you expand into new forms of insurance, aligned with the needs of an increasingly interconnected global economy,” Shah explained.

An important piece of Shah’s philosophy on the services that RMS provides is a desire to better enable the re/insurance industry to better protect the world from events such as large catastrophes and natural disasters.

This benefits both the insureds and provides opportunities for the providers of capacity, Shah explained; “If we can help you to quantify risks, you can extend coverage to cover those risks. If you can create coverage to cover those risks, you create ex-ante incentives in the economy for stakeholders to manage the risks and you monetise the costs of risk into the economy.”

“And by extending insurance coverage deeper into the economy you create the ex-post capabilities for individuals and corporations to recover rapidly when disasters occur,” he continued.

And Shah sees new capital entrants into the insurance and reinsurance market, in the form of ILS investors, capital markets and other start-ups with new and disruptive business models and different capital providers, as key to meeting the challenges of the new world of risk.

Alongside robust technology and risk modelling, the re/insurance industry needs to step up to the challenges posed and the requirement for increased resilience, in a world of increasing risks and interconnectedness.

“The scale of this global challenge requires a vibrant and expansion minded global insurance and risk management industry, that is innovating to create new forms of resiliency and doing so at massive scale. The world is a big place,” Shah commented.

“Catastrophe risk is growing and it’s growing driven by secular forces that are very powerful and somewhat inexorable. We need massively scalable solutions to be up to the challenge before us.”

Climate change, increased volatility of events, the rise of the developing world, the growth of mega-cities, urban and industrial concentrations and interconnectedness of risks in the current age mean that “there are no local events anymore,” commented Shah.

Alongside innovations in technology and modelling innovation, as factors required to address the growing exposures and risks, capital plays a key role.

Shah explained the need for innovation and to embrace and harness new capital; “Financial and risk transfer product innovation driven by new forms of capital and products that you will deliver so that we can scale and solve these global problems head-on.”

The need to move beyond the feeling that new forms of capital and ILS are a threat is key for the re/insurance industry, as it looks to grow the overall pie of insurable premiums in the world.

While the risks are larger than ever and some may feel the threats to their way of business are larger than ever, new capital and innovative technology solutions could provide the best opportunity the insurance and reinsurance industry has ever had to achieve significant and incremental growth over the coming years.

The combination of new capital, adopting new business models and strategies, with robust and effective open technology that provides enhanced understanding of risk and exposure, is perhaps the key trend that will enable market growth.

That market growth is not just for ILS and the capital markets to enjoy though, it promises a new opportunity for the traditional and the alternative, as well as an increasingly key role for the risk modeling firms like RMS to play.

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