RMS Report Examines Marine Risk, Cargo Modeling
RMS has published a new report examining the current state of cargo modeling in the marine market, and providing a new cargo-specific approach to the assessment of vulnerability and port accumulation. The report “Marine Cargo Catastrophe Modeling: Navigating the Challenges, Charting the Opportunities” precedes the May 2016 launch of the RMS Marine Cargo Model, the industry’s first marine cargo and specie risk model.
In the last four years, records have been broken twice for total insured marine losses—first for Hurricane Sandy in 2012 at $3 billion, then the explosions at Tianjin last year, reported to be $5-6 billion. While these two events have underscored the need for the industry to a develop a much deeper understanding of the risks, until now (re)insurers have lacked the tools to estimate their port accumulations, evaluate cargo protection measures, and measure the performance of cargo exposed to a catastrophic event such as a hurricane, storm surge, or earthquake.
“Global sea-based trade tonnage nearly quadrupled between 1970 and 2010,” explains Chris Folkman, director, product management at RMS. “With higher cargo volumes, larger ships, growing ports, and increasingly efficient terminal operations, exposures at risk are a growing concern. (Re)insurers need to have a better grasp of their cargo catastrophe risk and how it correlates with other lines of business. They simply cannot continue to use the outdated methods currently available to them.”
While property and contents exposure is at risk 365 days per year, cargo is mobile, and its vulnerability includes complex variables such as salvage value, protection, and packaging. A port’s exposure to catastrophic loss is affected by the port’s elevation profile, trade seasonality, and the spatial distribution of its exposure—particularly when evaluating high gradient perils like flood and surge.
The RMS report is intended to raise the marine industry’s awareness of its risk to catastrophic loss, improve risk management practices, and help the industry develop new financial and risk transfer products.
RMS partnered with leading marine (re)insurers Chubb, Aon Benfield, AXIS, Liberty, MS Amlin, Munich Re, and Sompo Canopius AG to develop the model.
Marek Shafer, Head of Catastrophe Management at Sompo Canopius, commented, “Recent significant losses in the marine market have reinforced Sompo Canopius’s belief that the approach to catastrophe management should be holistic across our group. The practice of square pegging marine exposure into the round holes of property catastrophe risk models is recognized as inappropriate. A new approach is needed to align these correlated classes and our collaboration with RMS represents a key step on this journey.”