First China flood exposure rating model
Flooding is one of the major threats to life and property in China, but to date, the insurance industry has had to depend on experience-based ratings, which have been unreliable especially for very large and infrequent events.
The sheer size of the country has made it difficult to create a market-wide exposure-based river flood risk assessment tool, necessary for reliable loss estimates for low frequency events or for modelling the impact of substantial portfolio changes or changes in original insurance conditions. At the same time, insured flood losses are still rising since China’s super-fast economic growth is boosting demand for property insurance. This is additionally exacerbated by the fact that – as in other industrialized countries – the growing concentration of insurable values in flood-prone areas such as flood plains is over-proportional.
Swiss Re’s China flood model
Using Swiss Re’s expertise in flood risk modelling and an underlying event catalogue compiled by the Beijing Normal University, Swiss Re has solved this problem for clients in China by developing the first event-based flood rating tool for the Chinese market. The tool is a proprietary product not for commercial sale but clients can fully benefit from its services. Its development was driven by Swiss Re’s strategic objective to accelerate growth in the Asian market.
Benefit for Swiss Re's clients
With this new exposure-based rating approach, Swiss Re’s underwriters and risk managers can help clients to consistently determine flood loss potentials also for rare flood events. Additionally, its high flexibility allows the tool to perform a series of what-if calculations reflecting changes in portfolio growth and original insurance conditions. Thanks to this tool, Swiss Re clients can get highly valuable information to facilitate the structuring and pricing of risk transfer solutions.
Event set based modelling
The Swiss Re flood exposure rating tool uses an event loss set which covers a period of 1000 years, and is derived from an event catalogue comprising the last 150 years of China’s flood history. Flood-affected areas have been determined using a digital terrain model and the Geomorphologic Regression process, a calculation method which Swiss Re has filed for patent (see figure above: indicative flood risk zones for the area of Xi'an in the Shaanxi province). Different flood vulnerability factors and insurance conditions permit customized flood risk assessment based on provincial-level aggregates. The tool has been calibrated successfully against market and insurance company specific losses of recent years including the 1998 event.
The new tool comes at an important time in the development of China’s insurance industry, and the country’s efforts to mitigate natural catastrophe risk.
Contact
For further information on the China flood rating model, please contact
Beijing: +86 10 8518 8966 103
Zurich: +41 43 285 4304
Back to Floods main page
