Risk manager takes on flood and crop cover gaps

Risk manager takes on flood and crop cover gaps | Corporate Risk & Insurance

Risk manager takes on flood and crop cover gaps

With Asian markets emerging as global economic powers, the risks these markets face grow even larger, especially those related to natural catastrophes. With their populations exceeding a billion each, China and India are among the markets that are exposed to significant flood risk.

JBA Risk Management, a UK-based provider of risk maps and analytics, has worked on a flood model for China, as well as a crop model for India, in order to help insurers more accurately map risks.

“China and India represent two of the most rapidly developing non-life insurance markets in the region,” Dr Iain Willis (pictured), managing director of JBA Risk Management in Singapore, told Insurance Business. “There are now over 40 million farmers enrolled in the PMFBY India crop scheme and premiums continue to grow. Similarly, China has seen a 24% average annual growth in the P&C market premium between 2006 and 2015.”

Willis described the state of flood insurance in Asia-Pacific as “inadequate.” He cited a World Bank and Organisation for Economic Co-operation and Development (OECD) study that found average annual economic losses from Asian flood disasters could exceed US$500 billion by 2050 if no additional investments in adaptation are made, compared with average annual global flood losses of less than US$30 billion over the past 10 years.

“Current relevance of private-sector insurance and reinsurance in terms of mitigating flood risk in Asia’s high-growth markets is limited, if not marginal,” Willis said. “According to Swiss Re, over the past 40 years, only 5% of economic losses from all flood disasters in emerging Asia were insured, compared with about 40% in Oceania, for example.”

JBA’s China flood model will help re/insurers quantify, price and manage their portfolio risk to inland flood in China, and according to Willis, it is an “exciting” development, being the first comprehensive inland flood model in the market.

“One of the biggest challenges for assessing flood risk in China is exposure data resolution,” he said. “Most reinsurers currently receive province-level aggregates and a robust methodology for disaggregating data to understand the likely distribution of exposure is key. The model is being carefully developed to support and enable a means to intelligently disaggregate exposure data from province or county level to the model domain, which is based on exposure density within each county per line of business.”

Meanwhile, the India crop model is built on a counter factual approach recreating yields by simulating contemporary crops in a past climate, Willis said. Other models use historic yield data that is very susceptible to trending uncertainties (given the variety of new higher yielding crops).

“The model can be used for helping calculate rates in the Kharif and Rabi bid rounds based on annual average losses of specific insurance clusters as well as modeling potential exceedance losses from the client’s entire portfolio,” he said.

It can do a daily simulation of flood, wind, extreme temperatures and drought which can be linked to the growing season of the crops. Extreme weather events outside of the growing season might not have an impact on the crops.

One vital factor linked to crop risk is climate change, which has been incorporated into the India model.

“This is something we looked into when we were building the India Crop Model,” Willis said. “Firstly, it’s important to state that India has undergone a green revolution in the last 60 years, whereby new varieties of crops are now far more resilient and higher yielding than they were previously. It’s also important to remember that additional CO2 in the atmosphere both hurts and benefits crops – it speeds up photosynthesis for crops and has increased global yields - but clearly a warmer climate is linked to extreme weather conditions that can cause the catastrophic failure of crops (by flooding, drought, heat stress).”

Increased client interest in JBA’s risk maps in Asia-Pacific has led it to expand its operations in the region. These clients include insurers, reinsurers, governments, non-governmental projects, and engineering consultancies.

“Our revenue grew by 50% from 2017 to 2018 and we continue to see healthy growth into the next year,” Willis said. “We’re also working a lot more widely that we were a year ago. Considering that our office only opened in July 2016, I think we’re on the right track. There’s a growing interest in our flood maps, models and consultancy services around APAC.

“To give you an idea, since the office opened we’ve undertaken work in Singapore, Sri Lanka, Malaysia, Thailand, Vietnam, Indonesia, China, Australia, New Zealand, and Hong Kong.”

JBA is also working on a multi-stakeholder project with several re/insurers and supranational organizations in a not-for-profit initiative aimed at increasing financial flood risk resilience in Sri Lanka.

“The consulting arm of JBA is very active with the World Bank and is working on a number of disaster risk consulting projects globally: building flood forecasting systems and developing local hydrology capacity in both Vietnam and India; improving the understanding of sedimentation processes and its significant contribution to flood risk in Dar es Salaam, Tanzania; carrying out flood risk assessments and optioneering green-grey infrastructure to help flood mitigation (Suriname); and climate change adaptation planning in the Mekong basin,” Willis said.