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THE CAT MODELLING MARKET

FROM LAGGARDS TO LEADERS

This whitepaper looks at the current state of the catastrophe modelling market and the barriers that prevent (re)insurers from adopting alternative views of risk. Crucially, the paper looks at ways in which we, as an industry, can work to reduce these barriers in order to bring down modelling costs, improve choice in the market and ultimately gain a more sophisticated view of risk across the industry.

A SIMPLITIUM WHITEPAPER | © 2018 Simplitium

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THE MARKET IS IN A DUOPOLY

Duopoly

The cat modelling marketplace is largely dominated by a couple of vendors. Although other cat modelling firms exist, none have gained market share close the market leaders. This has resulted in high barriers to changing or adding models for (re)insurers, a stifled route to market for new vendors, a lack of model choice and reduced innovation.

 

BARRIERS TO CHANGING OR ADDING MODELS

  • Cost 
  • Infrastructure changes and system integration 
  • Regulation, validation and understanding assumptions 
  • Benefit quantification, underwriter reluctance, model confidence and fear of change 
  • Proprietary data formats
  • Knowing what models are available

HIGH COSTS, LIMITED SCOPE OF MODELS AND RESTRICTED VIEW OF RISK

The duopoly combined with the high barriers to change in the market has driven up costs and reduced innovation in this space. This has resulted in the (re)insurance industry using a limited scope of models and therefore having a limited view of risk.

NEW TECHNOLOGY SIGNALS A RISK RESOLUTION

Hosted modelling services that operate on the Oasis LMF are making it easier than ever for (re)insurers to adopt new or alternative cat models, with lower costs, infrastructure requirements and training needs.

50% LOWER COSTS

Hosted cat modelling services should help firms realise cost savings of at least 50% over the next few years, or use more models for the same cost.

INCREASED EFFICIENCY

Multiple models from different vendors can be unified on one platform, accessible via one user interface, reducing the training requirements and improving the validation process.

An approach to cat modelling which is model vendor agnostic and embeds the possibility of change will inevitably differentiate leading (re)insurers from laggards in the years to come.

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