Page 29 - Business Insights 2012-2013
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If you go back to basics, the
question is how do you create
models if you don’t have the data.
that determine risk appetite and quantify them in
order to produce a public risk appetite index.
Risk is a poorly understood topic and the determinants
of corporate risk appetite have received little
attention, giving the Business School an opportunity
to quantify risk appetite based on corporations’
attitudes towards risk and the demand for insurance.
“This is about identifying trends and being able to
benchmark oneself against the market and reduce the
volatility of pricing,” says Biffis, who is working on this
project with Professor Nigel Meade. “It should induce
a more informed attitude towards purchases.”
The other project relates to one of the most
worrying insurance risks – damage caused by major
catastrophes. The Open Access Loss Modelling
Framework is a partnership between the insurance
sector and Climate-KIC, a European knowledge
and innovation community in which the School is a
major participant.
The “cat” modelling market is dominated by a small number of proprietary models,
making it expensive for new players to enter. This provided the motivation to
develop an open source platform.
“It will be useful to use a range of models to produce a spread of outputs and get
an idea of how the uncertainty inherent in this type of business is going to impact
the viability of a market,” says Biffis.
The gains from what he calls “cat modelling for the masses” will benefit not
only commercial businesses but also governmental agencies. “They can use cat
modelling for capital budgets and emergency and contingency planning,” he says.
“It can be used for project financing and the design of transportation or flood
defences. In developing countries agricultural insurance is key to having
access to finance.”
Imperial College’s contribution is multi-disciplinary with inputs from the
, the
and
as well as the
“Without Imperial’s expertise it would be very
difficult to have a team to deliver such a platform.”
The finance module will help insurers and institutions that use insured
assets to structure insurance-linked securities to transfer risks that are not
traditionally traded.
“This will free up capital to allow insurance providers to write more business
as capital market investors become willing to take on more risk through these
catastrophe bonds.
“We are trying to find ways to share large risks efficiently so by understanding risk
you may be able to identify people with excess capacity. Once you understand
the exact mechanics and dynamics of those risks you can find better ways of
redistributing the risk.
“The outcome should be a continuous improvement in welfare – better protection
at cheaper prices. And perhaps a wider provision of coverage to people who
currently can’t get insurance.”
By Phil Thornton
FEATURES
29
BUSINESS
INSIGHTS
2012 – 2013
