There are many different roles you can work in when working in the insurance industry, and one of these is working in catastrophe modelling.
Catastrophe modelling allows different types of companies such as insurance, reinsurance, corporations, public agencies and financial institutions to evaluate and manage the risk of catastrophes, from terrorism to pandemics to natural disasters.
In this article, we look at what a catastrophe modellers do, why they are important and how to pursue a career in catastrophe modelling.
What is catastrophe modelling?
Catastrophe Modelling uses a combination of science, tech and statistical data to simulate the impacts of a catastrophe. The evolution of catastrophe modelling has been rapid, and at first only a few types of catastrophe were modelled and it has since developed to include a whole range of catastrophes including;
- Terrorism
- Warfare
- Hurricanes
- Earthquakes
- Floods
- Wildfires
More fittingly, as this is being written in the midst of the Coronavirus crisis, catastrophe modelling can also be used for global pandemics. Just because something hasn’t happened in the past, doesn’t mean it won’t ever happen, as proven in 2020.
Catastrophe models may also be used for emerging risks, such as widescale cyber attacks an the growing threat of climate change and the risks that come with, including more extreme weather and potential population displacement.
What are the three modules?
Each catastrophe modeller provider has its own model, however, they all have the same three modules, of which require different areas of expertise from the likes of scientists, engineers and actuaries.
Hazard Module
The hazard module requires scientists to assess the level of physical hazard from natural events such as earthquakes would have on a geographical location.
Vulnerability Module
This requires engineers to assess the ways in which a structure would be damaged. This structure could be anything from a car to a skyscraper. They will have to assess what measures are in place to protect the structure.
Loss Module
This is where actuaries come in. They will calculate the financial cost, taking into account insurance policy conditions, the damage done and will estimate who is responsible for paying.
What does a catastrophe modeller do?
So where do the actual modellers come in? Modellers run these models and analyse the likelihood and magnitude of the financial losses that could result should these catastrophes take place. A catastrophe modeller then reports their findings back to a range people including underwriters, actuaries and key stakeholders. Because of this, catastrophe modellers have to have excellent communication and client facing skills, and have to explain complicated topics and findings to a range of people at different levels of expertise.
As a catastrophe modeller you could find yourself developing catastrophe models for various audiences, interpreting the results and then presenting these in the form of reports, webinars or presentations. You may find your work benefits everyone from government agencies to mortgage lenders.
Why is catastrophe modelling important?
As mentioned, the practice of catastrophe modelling has evolved rapidly and is now considered an essential element of best practices for risk assessment and underwriting.
Catastrophe modelling allows insurers and businesses to understand the potential risks before they have happened, helping them put safeguards in place to minimise damage should the catastrophe take place. Insurers use modelling to set premiums, government officials can use it to understand vulnerable regions and put policies in place and lenders can use models to establish lending practices. Therefore, catastrophe modelling is hugely important to a variety of industries and has helped many avoid potential bankruptcy.
How do I become a catastrophe modeller?
Interested in becoming a catastrophe modeller?
Unlike a majority of roles in insurance, those wanting to get into catastrophe modelling are likely to need a specific degree in geography, maths or statistics. There are few graduate programmes that deal directly with catastrophe modelling. However, there are junior and entry level roles in catastrophe modelling that give you a good opportunity to gain experience in this area and give you the ability to work your way up the career ladder. Alternatively, some move into catastrophe modelling from areas such as underwriting or after they complete their graduate scheme.
Where does a catastrophe modeller work?
As a catastrophe modeller, the chances are you will find yourself working for an insurance or reinsurance company, or you may find yourself working for a company at Lloyds of London.
While a majority of roles will be based in London, you may find there are a few roles that enable you to work in a more regional office, particularly if you are working for a larger firm.