NEW YORK, Nov. 12, 1997 — Insurance Services Office, Inc. (ISO) has expanded its consulting services by adding a new service to help insurers and others estimate and manage their catastrophe risk.
The new service combines ISO's actuarial and data-collection expertise with the expertise of two leading catastrophe-simulation modelers — Applied Insurance Research (AIR) and Risk Management Solutions (RMS). Clients can choose which of the modelers they would like ISO to work with on particular projects.
ISO can help insurers, investors, and regulators analytically appraise the effects of buying catastrophe options, which are scheduled to begin trading today on the Bermuda Commodities Exchange.
As the basis for those trades, the exchange uses the Guy Carpenter Catastrophe Index (GCCI), a loss-to-value index designed to estimate the amount of insured damage to homes in the United States from hurricanes and other atmospheric perils. ISO can provide similar analyses for other indices, such as the Property Claim Services Index, used by the Chicago Board of Trade, and the RMS Catastrophe Index.
Noting that securitization of catastrophe risk is likely to change the insurance marketplace substantially, John J. Kollar, ISO's vice president — actuarial services & research, said ISO's new catastrophe consulting services will help insurers spread their catastrophe risk to the capital markets outside the property/casualty industry. "Successfully managing catastrophe risk is essential to an insurer's survival," says Kollar.
ISO's Catastrophe Consulting Service can also help an insurer estimate its catastrophe exposure, revise rates to reflect its specific level of risk, and identify ways to minimize its catastrophe exposure by avoiding excessive geographic concentration. ISO can help an insurer make decisions on risk-load provisions in its rates to better reflect the cost of reinsurance, securitization of catastrophe risk, and capital requirements associated with catastrophe risks.
ISO can also help an insurer optimize its mix of catastrophe options and reinsurance to balance its appetite for risk and its cost to transfer risk. To help an insurer determine its own acceptable levels of risk, ISO can compare that insurer's risk levels with the risk level of the industry and, more particularly, with risk levels of insurers of similar size and scope.
And by combining the insurer's exposures with either RMS's or AIR's catastrophe model, ISO can help an insurer's claims department in disaster planning by estimating an insurer's probable losses and their location, so the appropriate number of claims adjusters can be dispatched to the catastrophe scene immediately after a catastrophe occurs. For hurricane losses, ISO, working with either modeler, can produce an estimate and send it to the insurer by e-mail while the storm is still offshore.
ISO has signed letters of intent with both catastrophe modelers, RMS and AIR, to provide catastrophe consulting services with each.
"Insurers and other entities facing large catastrophic risk need to determine what effect catastrophes will have on their capital, pricing, and claims, among other things," says Kollar. "The catastrophe-management services ISO provides in conjunction with AIR and RMS can help insurers make those determinations. ISO's new Catastrophe Consulting Services are a natural expansion of our growing consulting service and efforts to help insurers manage their catastrophe risk."
ISO offers a full range of consulting services to help insurers develop insurance programs for new markets, price those programs, address risk-management issues, and assemble and submit filings for regulatory approvals.
Insurance Services Office, Inc., provides information about property/casualty insurance, including statistical information, actuarial analyses, policy language, and related services. ISO's customers include more than 1,500 insurers and reinsurers, as well as agents, brokers, regulators, and risk managers.