Magazine article Risk Management

Award-Winning Research Is Helping Insurers Better Understand Flood Risk

Magazine article Risk Management

Award-Winning Research Is Helping Insurers Better Understand Flood Risk

Article excerpt

As we saw with Thailand's monsoon-season deluge and the destructive waters sent ashore by Hurricane Sandy, floods are one of the most catastrophic natural disasters. But by analyzing the science behind the devastation, insurers are learning to more accuractly underwrite what has become an increasingly costly peril. "We have to understand how probable they are and how large they might be in order to price the risk properly," said Trevor Maynard, head of exposure management and reinsurance at Lloyd's of London.

One way that his company is trying to analyze catastrophes is through its Science of Risk Prize, which it awards each year to recognize noteworthy research that advances risk management. The work that won the 2012 prize in the natural hazards category represents one way insurers are finding innovative methods to better understand flood risk. The first-prize paper, authored by Paul Bates, director of the Cabot Institute at the University of Bristol and senior academic with the Willis Research Network, illustrated how researchers have developed models that can predict flood hazard down to the individual property level in urban areas.

Historically, that has been one of the key problems in trying to underwrite the risk; flood maps are often outdated and lack the nuance that an insurer needs to make sure it is not over-exposed in one location. "There's some fundamental science that needed to be done," said Bates. "It's a counter-intuitive solution, as well. …

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