5th International Disaster and Risk Conference IDRC 2014 Integrative Risk Management - The role of science, technology & practice 24-28 August 2014 in Davos, Switzerland

1. Expanding the Application and Technology of
Catastrophe Modelling for Disaster Risk Reduction
Pane Stojanovski *)
*)
• Transitioned from the academia to RMS, lead model development, product development, data development,
worked with clients using the models, …and learnt
• Contributed to the growth of cat risk modeling industry – mostly for (re)insurance applications, … serving the
mature markets in North America, Europe, Japan, …. pioneered some new modeling domains…
• Wanted to bring cat risk modeling to effectively serve the (poor) populations in the developing and low income
countries where agriculture is much more than just food production, where poverty is high, and disaster risk
jeopardizes efforts for its elimination, worked on micro insurance, … founded with Prof. Shah Asia Risk
Centre
• Re-engaged with the academia (ICRM) and later founded Cat Risk Research (CRR) to focus on bringing the
experiences and expertise from the developed markets to assist in finding solutions for dealing with cat risk in
the poor and developing countries, where still 1.22 billion people lived on less than $1.25 a day in 2010 (WB
estimate)
• Cat Risk Research, LLC – founder, 2014
• Institute of Catastrophe Risk Modeling (ICRM) at the Nanyang Technological University (NTU) in Singapore, Professor (adjunct), from 2010
• WSSI (World Seismic Safety Initiative) Board, Advisory Board of ICRM
• Asia Risk Centre, an affiliate of RMS, founding executive director (2010-2013)
• Risk Management Solutions, Inc. (RMS), various leading positions in modeling, operations, and product development / deployment, VP Model Development
Operations (1992– 2010)
• Prior to joining RMS, visiting and consulting professor at the Blume Center (Stanford University) and professor at the Skopje University, Macedonia.

2. Sustainable, Long-term Disaster Risk Management - Public
Private Partnerships (PPPs) *)
Private Sector - Insurance
Measure of sustainability ? Return on Investment
for the Partners
• Profit and competitive advantage
• Risk management enterprise is well defined,
and taking part of the disaster risk form
governments is just an addition to the
vibrant, well defined operations and risk
management program
Public Sector - Government
Measure of sustainability ? Return on Investment
for the Partners
• Improvement of the livelihoods of the
population and protection from disasters that
is commensurate with the government’s
investment (funding and subsidies in cat risk
protection schemes)
– Agriculture, as an example - recovering losses to
capital stock (barns, equipment, land, etc.), direct
household income (from crops, livestock, fish etc.),
nutrition (and related impacts on human
development), and indirect losses of future
production and income in the years following the
disaster.
• Risk management enterprise is broad,
disaster risk quantification - financial loss and
other metrics. Comprehensive exposure and
comprehensive cat risk models needed to
provide required metrics. Such models and
applications are not available today.
Having a comprehensive view of the risk from the government perspective is needed as basis for
effective and sustainable transfer of part of that risk to the insurance as part of a comprehensive
cat risk management program.
*) Recommendation form the “WEF Global Risks Report 2014”

3. Cat Risk Quantification And Management – Private Vs. Public Sector
Developing & Low Income Countries
CAT RISK
MANAGEMENT
PROCESS1)
PRIVATE SECTOR – e.g.
(RE)INSURANCE, BROKERS
GOVERNMENT
What is done today? What can be done in future?
IDENTIFY CAT RISK
CAT RISK
 Explicitly quantified across
the company enterprise,
 Regulatory requirements (
e.g. Solvency II)
EXPOSURE
 Entire company enterprise,
 Strictly tracked and
controlled for risk control
and diversification
CAT RISK
 Generally recognized, but not
explicitly quantified across the
entire enterprise of interest
 Country specific (varying)
legislative and regulatory
environments
EXPOSURE
 Partially tracked for specific risk
transfer (e.g. subsidies for crop
insurance – partial production
costs)
 Large portions of the exposure
not addressed – infrastructure,
livelihood protection, post
disaster relief, post disaster
livelihoods recovery, post
disaster human development
protection
 Achieve similar level of exposure
tracking, risk quantification, and risk
management with the private sector
in the debate leading to sustainable
Pubic Private Partnerships for
protection against the disaster risk.
 Make governments priorities and
objectives clear and transparent
with qualitative risk metrics across
the entire enterprise of interest.
 Integrate insurance cat risk transfer
as part of the holistic government
risk management program
PRIORITIZE TOP CAT RISKS
*) Risk management steps adapted from “WEF Global Risks Report 2014”

4. Cat Risk Quantification And Management – Private Vs. Public Sector
CAT RISK
MANAGEMENT
PROCESS1)
Developing & Low Income Countries
PRIVATE SECTOR – e.g.
(RE)INSURANCE, BROKERS
GOVERNMENT
What is done today? What can be done in future?
UNDERTAKE CAT
RISK ASSESSMENT
 QUANTITAVE by definition
 Multiple vendors’ models
 Probabilistic, event based
 In-house models
 On-going technological
upgrades for efficient and
rapid risk profile updates
 Standardized risk metrics
for financial loss (e.g. AAL,
Return period losses, tail
conditional expectation,
etc.)
 Applications for
underwriting,
accumulation control and
portfolio management
 QUALITATIVE and relative for the
enterprise (when undertaken)
 Little or no use of modes
 Models with inferior
sophistication compared to the
private sector use of models
 In house models not used, except
for a few exceptions
 Low or no demand on technology
upgrades
 Risk metrics as per the demands
of the private sector in risk
transfer arrangements, often
provided as “assistance” by the
private sector or by sponsoring
donors.
 Applications mostly in limited
number of insurance contracts
with the private sector (e.g. crop
insurance) with large portions of
the government enterprise risk
not covered.
 QUANTITAVE by definition
 New classes of risk models tailored
to government needs and
exposure.
 Probabilistic, event based
 In-house government models
 Access to technology to use and
share other countries experiences
for holistic technological upgrades
for efficient and rapid risk profile
updates
 Conventional risk metrics - financial
loss (e.g. AAL, Return period losses,
tail conditional expectation, etc.),
develop new metrics to measure
impact on livelihoods, nutrition and
human development across the
government enterprise.
 Applications for development and
comprehensive testing of policies
and programs against the disaster
risk.
IDENTIFY CAT RISK MANAGEMENT OPTIONS  DESIGN CAT RISK MANAGEMENT STRATEGY  DESIGN CRISIS MANAGEMENT STRATEGY
 IMPLEMENT  MONITOR AND UPDATE STRATEGY
*) Risk management steps adapted from “WEF Global Risks Report 2014”

5. Public vs Private Risk Exposure – Example, Agriculture Loss Map
Long Term
Income
GOVERNMENT ?
COMPREHENSIVE LOSS DISTRIBUTION
PRODUCTION LIVELIHOOD
INSURANCE REINSURANCE
RETENTION
RETENTION
Seeds and
Fertilizers
Labor and
Other Costs
House,
Structures
and Tools
Nutrition/
Sustenance
Growing
Season
Income