'Quake risks can now be quantified'-Editorial-Opinion-The Economic Times

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'Quake risks can now be quantified'

SANJEEV SINHA TIMES NEWS NETWORK [ SATURDAY, FEBRUARY 10, 2007 01:50:57 AM]

NRI Account with Special offer RMSI, Indias leading geospatial data and software services company, has partnered with the US-based Risk Management Solutions (RMS) for creating catastrophic risk assessment models for the insurance industry. India is the only country outside the US that will develop new models for RMS. As a first step, RMSI has developed the India earthquake model to quantify the potential risk associated with earthquake events. In an interview, Roger Arnemann, vice-president, global consulting and data services, RMSI, talked about the model and their India plans. Excerpts: What is the India earthquake model? What is the target audience and how do they benefit from it? The RMS India earthquake model is the culmination of multi-disciplinary expertise to quantify the potential risk associated with earthquake events in India. The model generates over 40,000 hypothetical and actual historical earthquake events within its stochastic event set. Local hazard conditions such as soil type and landslide potential are incorporated to assess regional effects. Finally, insurance financial instruments such as limits and deductibles are analysed to end up with comprehensive view of the risk for a single location or an entire portfolio. The model has been developed for the entire insurance market as a whole. It is expected that domestic and foreign insurers, re-insurers, and brokers will be the first to adopt the model. How will the model help property buyers? Will they be able to ascertain whether a building meets the quality norms (of being quake resistant)? Although it is not initially expected that end consumers such as home owners will use the model directly, the model will enable the market to price risk more accurately so that those in higher risk regions would pay higher rates while those in lower risk ones would pay lower rates and, thus, no longer subsidise those in higher risk regions as happens with flatter pricing schemes. Insurers would also be able to quantify the difference in risk between a building designed to withstand earthquakes and one where building codes have not been adhered to rigidly. Those consumers who are able to show that their property was built to the building codes, or was strengthened to increase its resistance to earthquakes, should benefit from reduced premium rates. Pre-event and post-event, the models provide valuable insight into the susceptibility of various construction methods and materials. They can also help highlight enforcement issues for areas in which building standards are inconsistently followed. Finally, market-level studies based on the model provide important insights to consumers about the relative and absolute earthquake risk of living in particular regions and, in turn, the likely insurance rates required to seek financial protection from this risk. Is RMSI focused only on earthquakes or does it have plans for other risks? RMSI is heavily involved in government and private sector consulting projects to assist its clients in quantifying risk associated with flood, drought, cyclone and crop yield risks throughout India. RMSI develops innovative solutions that integrate geographic information with niche business applications. From developing centres in India, RMSI provides comprehensive geospatial and software services to clients across the globe, in sectors ranging from land and property, wireless telecommunications, disaster management, insurance, agriculture and natural resources, transportation to the government and multilateral funding agencies. Why is RMS making India the global hub for developing catastrophe models? We are investing in the tremendous opportunity to move beyond a traditional and narrow outsourcing perspective to a knowledge and development centre. In India, we have already begun the transition from providing data outsourcing to providing what we refer to as data intelligence services to the insurance market. This is a dedicated and aggressive development of end-to-end expertise, ranging from research and scientific modelling to software design and risk consulting, putting RSMI in the drivers seat for conceptualising and delivering these critical client services to a global market. How do you see the future of risk management? Blindingly bright. A pervasive culture of quantitative risk management is the cornerstone to achieving consistent financial returns in the insurance industry.

Bennett, Coleman and Co., Ltd. All rights reserved.

http://economictimes.indiatimes.com/articleshow/msid-1587172,prtpage-1.cms

10/02/2007