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The Actuary The magazine of the Institute & Faculty of Actuaries

Insurers getting to grips with catastrophe risk and non-modelled perils

Insurers need to become fully aware of non-modelled perils such as tsunamis and volcanic eruptions, according to Aon Benfield.

Ahead of a seminar on the topic, the Aon Benfield UCL Hazard Centre has stressed the importance of ‘Getting to grips with non-modelled perils’ following catastrophic losses in Q1, such as tsunamis generated by the Japan and Chile earthquakes, plus the disruption caused by the Icelandic and Chilean volcanic eruptions, and the effect these have had on insurers’ portfolios.

Paul Miller, head of international catastrophe management at Aon Benfield Analytics, said: "It’s crucial to understand what exactly catastrophe models do and do not model. In Japan, for instance, we have seen considerable losses from non-modelled sources, especially the tsunami and the knock-on implication affecting contingent business interruption. We work closely with insurers to identify and account for non-modelled perils, ensuring they have a more accurate view of their overall catastrophe risk."

Dr Steve Edwards, Aon Benfield UCL Hazard Centre, said: "The seminar is designed to highlight the important characteristics of the key non-modelled perils, which insurers should know and consider when assessing their risks. For example, around 80% of damaging tsunamis are produced by earthquakes, but other significant sources include volcanic eruptions, volcanic island collapses and submarine landslides."