Modern Insurance Magazine Issue 60

INTERVIEWS
Kirsten Mitchell-Wallace
is the Director of Portfolio Risk Management at Lloyd’s, the world’s
leading insurance market. She is responsible for leading the strategy
and day to day activities of Exposure Management & Aggregation,
Outwards Reinsurance, Pricing & Portfolio Analytics and Emerging
Risks teams. She has been at Lloyd’s for over 5 years and has over 20
years of experience in the insurance industry. In her previous role as
Regional Cat Manager for Europe, Middle East and Africa at SCOR, she
was responsible for leading catastrophe risk teams based in Zurich and
Paris. Before this she was Head of Cat Pricing and Methodology and
responsible for coordinating the development of SCOR’s own view of
risks, as well as managing the Zurich-based cat team. She also worked
for Willis as a Senior Catastrophe Risk Analyst for almost five years and
spent two years in model development for RMS and a couple of years as
a risk management consultant.
Kirsten has a PhD in Atmospheric Physics from Imperial College, London
and a Masters in Meteorology from Reading University, as well as a
degree in Chemistry from the University of Bristol. She also has an
International Diploma in Risk Management from the Institute of Risk
Management, a Level 5 qualification in Coaching and Mentoring from
ILM, and is a Certified Catastrophe Risk Management Professional.
motor insurance space, there are clearly so many
potential avenues where we’re seeing information
open up - particularly for insurance, pricing,
accumulation and product development.
QConversely, catastrophe modelling is a
relatively young discipline in comparison
to other risk management processes within
insurance. How does this create limitations?
ACatastrophe modelling came about in the
early 1990s, so we’re looking at around 30
years - quite a while in career terms! That
being said, we face some of the same challenges we
always have, one of which is the communication of
uncertainty.
Limited quantification of uncertainty in catastrophe
models is definitely still a restriction. I think that
continues to create a real test for us as an industry,
particularly for anyone who’s involved in modelling
or quantification of risk. You can’t just think about
what the point estimate answer is, but also what the
uncertainty around that is, and what your appetite
for that uncertainty is. How conservative do you
want to be? We’re asking people to think about that
a lot more within the market at the moment.
QWhat about Managing Agents? How can
they improve their modelling and pricing of
catastrophe exposures?
AThe completeness and appropriateness of
their view of risk in relation to the current
risk environment is paramount. Managing
Agents must be alive to all of the changes that
are happening at the moment, and ensuring that
those changes are adequately reflected within their
distribution of losses.
Traditionally, I think the focus of catastrophe
modelling and exposure management has been
more on the tail risk, making sure people are
adequately capitalised for really big events. Now, it’s
becoming equally important for people to put the
same level of focus not just on the tail, but on the
whole distribution. You’ve got to get the expected
loss right if you want the pricing to be right and the
technical pricing to be appropriately derived.
QFinally, many insurers have declared an
intention to reduce their natural catastrophe
exposures due to volatility and the
likelihood of rising claims costs. What more can
be done to provide the sector with appropriate
reassurance?
AIt’s true that claims costs are rising, and
in reality, we expect them to continue to
rise because there continues to be more
exposure. Much of that exposure is in locations
which are inherently considered to be more
hazardous; coastal areas or the wildland-urban
interface, for example. That’s before we’ve even
considered the impact of climate change.
On top of this, climate change will have an impact
– and that impact will vary depending on different
perils in each specific region.
A rigorous analysis of historical claims and the
components of this data helps to ensure that
current claims are being modelled appropriately
and, on top of that, potential future changes within
the environment can be worked into modelling
frameworks. The data going into these models
needs to be accurate, and other factors which could
amplify claims should be considered within the
modelling framework.
It’s important that we focus on the frequency of
catastrophe claims, not just the severity, keeping on
top of the science and making sure that our models
remain appropriate for the current conditions.
Dr Kirsten Mitchell-Wallace,
Director of Portfolio Risk Management,
Lloyd’s of London
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