• December 10, 2023

Guy Carpenter Leverages Nasdaq Risk Modelling for Catastrophes to Assess Risk Exposure

T.The global reinsurance broker Guy Carpenter, partner of Nasdaq and user of the service Nasdaq Risk Modeling for Catastrophes, is continuously developing new disaster risk models for different hazards and regions of the world. We sat down with Mark Weatherhead, Head of Modeling at Guy Carpenter, to talk about their approach to risk modeling, as well as the trends and challenges they see in the future.

Why did you choose to partner with Nasdaq Market Technology?

Nasdaq Disaster Risk Modeling is based on the OASIS Loss Modeling Framework and is designed as an open source platform for members of the insurance community like Guy Carpenter to study and analyze the risk of natural hazards. Modeling disaster risk is very complex. The scalability and robust structure offered by the Nasdaq platform have supported our operations and enabled us to run multiple risk models across threats and countries. The platform therefore offers the ability to easily scale the modeling, which in theory means that we can perform thousands of CAT risk analyzes per year.

As we dive deeper into the Guy Carpenter business, can you give us some background on your mission and service to the reinsurance and insurance industry?

We serve the insurance industry. At Guy Carpenter, our main goal is to help our clients and insurance companies manage risk. In this case, there is a natural hazard such as earthquakes and floods. In terms of risk management, we offer advice and solutions and have invested heavily to fill the gap in popular disaster risk models and analyzes. We have focused on building tools and models for our clients to help them better understand their risk. The Nasdaq Risk Modeling platform allows us to run multiple models to analyze natural hazard risk without being tied to the technology development or software side. The transparency that comes with the open source setup has essentially helped democratize the CAT risk space so that we can focus on analyzing rather than building and maintaining the software.

When we take a closer look at your model development, do you focus on specific regions or hazards? And how does your model development enable efficient management of the risks and challenges of climate change?

Guy Carpenter’s model development has historically focused on filling the knowledge gaps. In other words, make sure there are models that require models that have mostly been used for flooding. Our goal is always to help our customers manage their risk. This means that we focus on hazards and regions where our customers are exposed. Our customers increasingly want a global picture of their exposure and risk, not just for the traditional top areas. Last year we published flood models for parts of Asia such as Malaysia, Indonesia, Vietnam and Thailand. In addition to developing and deploying models to support our insurance customers in various regions and territories, we are increasingly working with governments, non-governmental organizations and other organizations such as the World Bank to address natural disasters and climate risks. In many countries, responsibility in the event of a natural disaster rests primarily with the government. This alone can weigh on the government and drain resources from other, more pressing issues. Funding disaster risk through mechanisms such as reinsurance or cat bonds can go a long way in improving communities’ resilience to natural disasters and significantly reducing recovery time. This is where our modeling comes in because you need to keep an eye on the frequency and severity of natural hazards in order to secure investments. We can use a framework from Nasdaq that is not tied to any particular model provider, that is often more attractive to public sector customers, and that creates a common ground for understanding risk.

How has partnering with Nasdaq Risk Modeling for Catastrophes enabled your company to serve reinsurers worldwide?

Partnering with Nasdaq has made the process easier for us to run models on OASIS at production scale. Because we can use one platform to run both our own and third-party models, all we need to do is train our analysts and modelers to use NRMC while still having access to the models our customers need. This allows them to focus on what they can do – analyze the risk of natural hazards – rather than retraining to learn different platforms.

Since the beginning of the partnership, we have worked closely with the Nasdaq team on the software development side. They took our advice and viewpoints into account when developing the new SaaS-based platform. The data our analysts work with looks different in every country. The platform must therefore be flexible enough to be able to handle the data regardless of country, region or danger.

In addition, the models are used and performed differently depending on the end user and the questions we ask. Analysis to provide information on reinsurance placement can be very different from analysis used for internal portfolio management purposes. Likewise, a government customer may be primarily interested in total cost of damage rather than a post-re / insurance perspective. The end goal is still managing risk. Access to a uniform platform that our analysts and model builders can use helps us serve customers regardless of region, industry or risk.

Nasdaq’s CAT risk modeling platform is based on the OASIS Loss Modeling Framework, an open source framework that enables easy access and industry standardization for disaster risk models. How was the OASIS framework relevant for your business and model development?

The open source perspective with OASIS has certainly lowered some barriers to entry for smaller model developers, users, and academic groups. As already mentioned, the OASIS initiative democratizes knowledge about risk and CAT risk modeling. I also need to highlight the ecosystem aspect of the framework and platform as the community has grown around this and it has become a collective effort that flows back into the framework for continuous development.

The democratization aspect is one point. But there is also the aspect of standardization. When there is a standard for building, deploying, and running models that we can all focus on, there is efficiency in both time and learning. It is valuable to have a single platform for the insurance community to come together and develop together.

What are you looking forward to for Guy Carpenter and the industry later in 2021?

From the OASIS point of view, I am looking forward to further improvements to the platform and improved scalability. We look forward to launching a new range of models that are in preparation.

It is important for us and the rest of the industry to improve knowledge of climate change and understand the effects of different climate change scenarios. There is no doubt that climate change will affect the entire industry and it is a good opportunity for us to work together in the future to share data and insights for the benefit of the communities we all support.

CAT modeling is very different today than it was 30 years ago when it all began, and even in the 15 years since I first started, we’ve seen an amazing increase in the amount of data and computing power available. Platforms like OASIS and NRMC have the potential to change the industry, and I look forward to seeing how big data analysis goes on at scale and with high performance. It will be interesting to see how this will grow and if we can develop truly global models that will allow us to understand everything from regional patterns to the effects on individual buildings.

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