Modern Insurance Magazine Issue 60

INTERVIEWS
solutions, particularly in specialist insurance
when it comes to understanding potential
conflict. Undertaking research that helps
us get to grips with the complicated
dynamics of supply chain dependencies
is critical. In recent years, we’ve seen
instances of being blindsided by that level
of interconnectedness, and investing in
research is the real key to understanding
how we can be best prepared for future
systemic shocks.
Q
A
How have you seen research trends
change and evolve in recent years?
What factors have triggered these
changes?
Research is increasingly moving to
more interdisciplinary approaches.
To answer the big questions, you
need a range of different specialisms in the
room. To fully understand the risk posed
by hurricanes in the reinsurance industry
you need wind experts, but you also need
hydrologists, coastal flood specialists,
actuaries, civil engineers. A lot of the current
focus lies in understanding risks holistically,
considering the bigger picture behind that
risk and its full effects.
Research trends are also becoming more
attuned to systemic risks. We’d been
living in a fairly benign period for quite a
few years before the pandemic; conflict,
the macroeconomic landscape and wider
geopolitical risks hadn’t significantly
moved insurance markets on a global scale
until very recently. Now that we’ve faced
an unforeseen set of global challenges,
alongside a growing climate crisis, research
trends are steering towards a greater need
to understand systemic risks in order to be
better prepared.
Q
On the subject of interdisciplinary
approaches, the GRC looks to
create ties between insurance and
academia. How does this collaboration
benefit Gallagher Re’s product offering
in relation to both natural and manmade
perils?
The output of our research filters
back into our product offering
A through any and all relevant means.
From an economic risk aspect, for example,
we’re working with London School of
Economics in order to better understand
the drivers of macroeconomic inflation and
interest rates; and how these differ in the
US, Eurozone and Asia. While some macro
drivers are the same, the impact is different
regionally and across different insurance
products. This is of huge relevance to our
brokers and the wider insurance market
more generally. Rising inflation had a major
impact on reinsurance renewals over the last
12 months, so it’s vital that we’re ahead of
the curve on this.
When we’re discussing research in the
natural catastrophe space, there’s a strong
correlation between data and risk models.
Our academic partners are a fundamental
source of the latest scientific data to help
build hazard models, solutions, advocacy
and advisory services that Gallagher Re
offers. We’re always keen to point out that
the Research Centre is focused on ‘applied
research’ rather than philanthropy; all of our
research is being used in some way to the
ultimate benefit of our clients and the wider
industry as we seek to navigate a really
tricky risk landscape.
Q
Interestingly, you showcased some
new storm surge scenarios for
UK insurers at your ‘Rising Tides’
research seminar back in May. What key
findings were exposed by this analysis?
A
Well, 70 years have passed since
the North Sea floods of 1953.
Despite being the biggest UK
coastal flood disaster of the 20th Century,
research within the reinsurance industry
on storm surge risk has been relatively
overlooked in recent years. Since 1953, the
UK government has spent a lot of time
and money upgrading and creating flood
defences around the UK coastline, which
have been effective, but we’ve also had
more significant tidal levels since then.
The key difference is that current flood
defences are hugely mitigating storm surge
risk, but that also begs the question of what
will happen if flood defences fail or are
breached? In the 2013/2014 winter season,
there were 25 breaches of UK coastal flood
defences. This became something we
wanted to explore in our research.
Working with HR Wallingford, we simulated
a number of different flood breach
scenarios along the UK’s east and west
coastline, taking note of particular locations
that are heavily exposed in terms of
properties.
The takeaways from this were fascinating.
Our findings show that even when a
defence breaches, the remaining defence
still protects much of the coastline, often
acting to slow down the flood waters. The
second question was to consider how much
worse that same event could be in 2050
due to climate change and rising sea levels.
Again, HR Wallingford completed a number
of different simulations based on the surge
scenarios, and the findings are enlightening.
A huge amount of the UK coastline is
protected at the moment, but if that
protection wasn’t there, it’s hard to deny
how exposed certain communities are. We
also found that climate change will further
exacerbate that risk, with an additional 20%
more properties at risk in 2050. It made
for a great event with lots of technical
deep-dive sessions and discussion with our
clients and guest speakers!
Q
Which topics generated the most
audience engagement at the
research seminar?
There was a lot of debate in
the room around flood defence
A breaches. We could have a storm
tomorrow and it might be the biggest surge
event ever seen in the UK. Sure, there would
be very little impact if all defences hold.
Realistically however, we know that
some defences are likely to
breach. So, if you’re a UK insurer and you’re
modelling and pricing that risk, there’s a
huge amount of uncertainty to factor in
there.
Compound risk was another key talking
point. What might happen if a river flood
meets a large coastal surge in an estuary?
In these circumstances, you have to
consider the joint probability of such an
event occurring. This idea of compounded
risk is something that the industry is only
very recently starting to consider. Again,
there’s no reason why we can’t understand
these risks better through effective and
collaborative research.
Q
Finally, what do you think might
prove to be the most valuable focus
in catastrophe research and
risk modelling over the next decade?
We need models to be more
dynamic. We’re starting to see that
A the current ways in which we look
at risk are perhaps not entirely sustainable;
non-stationarity and trending climate are all
factors that challenge the accuracy of our
existing catastrophe risk models. We need a
more dynamic approach to modelling risk in
order to ensure that our models are realistic
and not out of date.
Intercorrelation between other perils, and
understanding how all of our weather is
connected, will also be really important as
we look to learn about how climate change
and climate modes can affect our weather
patterns. If we can understand some of
those bigger processes, moving away
from our tendency to model perils in very
defined, geographic regions, this will be a
huge area of innovation across the global
catastrophe risk marketplace.
MODERN INSURANCE | 15