Open source modelling will reduce the barrier to entry for new modelling agencies. It also presents a platform for the user where they can more easily see the levels of uncertainty within a risk

Paul Nunn, Lloyd's head of exposure management, has told insurance and reinsurance leaders across the world that the industry should move towards an “open source” approach to the modelling of risk.

Nunn was speaking at the 20th Annual International Reinsurance Congress held in Hamilton, Bermuda, during a session examining the use and value of catastrophe models.

The event attracts leading figures from across the insurance and reinsurance sectors and Nunn said that the market had to look at moving to an open source risk model system.

Open source risk modelling has been the topic of much debate over the past three years.

At present much of the risk modelling for insurers and risk managers is carried out on proprietary systems and the argument has been made that the move to open source, in which the systems operate on universally available data, would make for a broader level of risk models, giving a greater degree of the information for risk managers, regulators and underwriters.

Providing a more balanced view:
It is a view that Nunn said he supported and told delegates that a move to an open source approach would provide users with a more balanced view of individual risk models and their parameters.

“Open source modelling will reduce the barrier to entry for new modelling agencies,” he says. “It also presents a platform for the user where they can more easily see the levels of uncertainty within a risk.”

Nunn adds: “Following the 2005 US hurricane season the agencies learned a number of lessons and went away and came back with new models.

“What we really need is the establishment of five or six models which can be used together which will give the user an indication of the true spread of estimates.”

He continued: “At present we have two agencies which are trying to cover events and scenarios across the world and are increasingly stretched. There is a huge amount of academic and governmental data which could be used to source new models.”

Nunn says the move to open source would enable the market to deliver a broader offering and as such it remains an attractive option.

The three day conference has brought together industry figures to debate the challenges facing the market including the management of the cycle and how the market will be the challenges of greater natural catastrophes.

Among the other speakers were Hiscox chief executive Bronek Masojada and Kiln's head of reinsurance Andrew Carrie

This Feature item appeared in issue 110 of JTW News - November 2006

Author: Paul Nunn - Lloyds