Risk transfer industry steps up battle against Asian risks

Following warnings from reinsurers that without better understanding of business interruption and contingent business interruption risks - so heavily exposed by the Thai floods and Japanese earthquake and tsunami last year - cover may be restricted, Guy Carpenter has released a database to help determine the location and size of key industrial parks in Asia and maintain a list of all companies that operate within them, as well as their supplier information and, where available, industry type. Also this week Aon Benfield launched a flood model for Thailand to help global insurers gain a better understanding of their exposures in this growing market. Guy Carpenters' database focuses on industrial estates in China, Taiwan, Thailand and Indonesia.hideIt has digitised their boundaries and will provide access to these maps through i-aXs(r), the reinsurance brokers' exposure visualisation and portfolio management platform. Using i-aXs, insurers will be able to evaluate concentration of risk from within a single industrial estate. It provides supplier information as a 'useful first step and important tool' when investigating contingent business interruption loss potential from various perils. "One of the critical lessons learned from the Thailand flood is not only the enormous potential for property loss if a large industrial park is impacted by a catastrophe, but also the ripple effect of business interruption and contingent business interruption losses arising from shutting down key manufacturing locations. The development of the industrial park database for these initial four countries is an important step in helping companies analyse their exposure to losses originating from industrial parks," said James Nash, CEO of Asia Pacific Region at Guy Carpenter. Last year's Thailand floods severely damaged and disrupted manufacturing operations in seven large industrial parks, due in a large part to the significant concentration of insured values. Total insured loss from the flooding is estimated to be in the range of $15bn to $20bn with a disproportionate contribution of losses from industrial estates. The losses were above and beyond industry expectations, in part because of the unmodelled nature of the risk. In a further response Aon Benfield has launched a fully probabilistic Thailand flood catastrophe model, developed by Impact Forecasting-its catastrophe model development centre of excellence. It incorporates an improved understanding of the key drivers of flood risk in Thailand and the ability to make more informed decisions on reinsurance purchase and pricing. It provides modelling for residential, commercial and industrial lines of business and its damage functions are based on 2011 claims data and international experience. Malcolm Steingold, Chief Executive Officer, Asia Pacific for Aon Benfield, said: "Aon Benfield has provided vital support for insurers and reinsurers in Thailand and the wider Asia region by securing renewal of crucial reinsurance capacity in the aftermath of the largest ever catastrophe loss in Asia outside Japan. As we move towards the next reinsurance renewals, the new model-based on numerous site inspections-will help us to better assess the vulnerability of risk concentrations to natural perils and to address the issue of unmodelled perils." Adityam Krovvidi, Head of Impact Forecasting, Asia Pacific at Aon Benfield, added: "Flood is one of the most difficult perils to model due to complex geophysical phenomena, ever increasing human interventions and potential climate variability impacts. The record flood insurance loss in Thailand provides a learning opportunity to further investigate the potential impact of this hazard. This in turn has enabled us to create a solution that lies in a rigorous analytical and scientific approach, while taking into account the location of exposures and flood defences." The Thailand flood model is integrated into ELEMENTS, Impact Forecasting's proprietary loss calculation platform, that gives access to 30 catastrophe models spanning over 20 territories and six key perils.

Risk transfer industry steps up battle against Asian risks

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