Addressing analytics in Asia Pacific

Aon’s Brad Weir and Tom Mortlock discuss the trends impacting the Asia Pacific reinsurance market.

Although natural catastrophe activity in Asia Pacific (APAC) has been below average this year, the region remains vulnerable to insured losses, a risk heightened by the increasing impacts of climate change.

Brad Weir, head of APAC analytics, and Tom Mortlock, head of APAC climate analytics, explore how Aon’s new solutions are tailored to provide expertise and a clear understanding of these risks to a wide range of clients.

What has natural catastrophe activity in Asia Pacific looked like this year?

Brad Weir: Activity and loss in 2024 is currently trending below the long-term average. However, there was significant typhoon activity in August and September impacting most countries within the North West Pacific region. Typhoon Yagi was one of the strongest typhoons to impact both Hainan and Vietnam in history, causing significant flooding and damage across property, engineering and motor risks in northern Vietnam. There were also several notable earthquakes within the region impacting both Japan and Taiwan.

Secondary perils such as severe convective storms in the US have risen in prominence in recent years. Will we see a similar re-ordering of events in APAC?

Tom Mortlock: We traditionally grouped perils into primary perils – which included cyclones and earthquakes – and secondary perils, which incorporated everything else. That used to work in the US, but over the past eight years globally, the upward trend in losses has been driven by an accumulation of smaller secondary peril events like floods and severe convective storms. In Australia, these secondary perils have always been significant because there’s a multi-peril environment; floods, hailstorms and bush fires have always been significant loss drivers.

BW: For Asia, it’s generally recognised that earthquakes, typhoons or floods can cause significant losses as the primary peril, depending on the country in question. While some might refer to flood as a secondary peril, this is more a reflection of the challenge in Asia in understanding and assessing the risk for complex urban environments. However, continued investment over recent years has closed this gap.

What are the challenges of modelling? Are your models now increasingly accounting for the effects of climate change?

TM: There are challenges for flood and hailstorms because they are very location-specific, so firms require high-resolution data to model them correctly. You can use coarser-resolution modelling for earthquakes and cyclones because whole suburbs are impacted at a very similar level. Storms are notoriously difficult to model, given that they are very small-scale events, and the location of the hazard footprint dictates the level of loss.

BW: From a climate perspective, catastrophe models are used in a regulatory framework to answer questions on stress testing around solvency and capital requirements. For example, in Malaysia, Impact Forecasting, which is Aon’s catastrophe model development centre of excellence, has released a new flood model which is fully climate-conditioned, so you can look forward under different climate scenarios to address local requirements around stress testing for flood.

How do you work across Aon’s Risk Capital structure and the firm’s Climate Risk Advisory function?

BW: Risk Capital Analytics brings together decades of experience and investment from our insurance and reinsurance related-analytics with expertise, academic partnerships, tools and data development – and delivers it to a wider corporate client base enabling data-driven decisions around risk.

TM: Climate Risk Advisory is a global function that is helping to bring clarity and confidence to clients, and ultimately shape better decisions. The strategy was to bring together disparate capabilities within the organisation into one advisory offering for clients, not only around physical climate risk, but also the transitional and legal aspects of climate risk. It goes hand-in-hand with the Risk Capital initiative, and we are bringing climate capabilities directly to a wide range of institutions, such as insurers, reinsurers, banks, conglomerates and real estate investment groups, to help them understand risk, then look at risk transfer and other aspects around resilience and sustainability.