The Oasis Loss Modelling Framework has unveiled what it describes as “the most significant development in the modelling of natural catastrophe losses for 20 years”—the launch of an independent, global, open framework for use by any party with an interest in creating a catastrophe model.

Twenty-one insurers, reinsurers and brokers, including Lloyd’s and leading European and North American players own Oasis, which calls itself a framework for independent catastrophe modeling. The group said the framework is now ready for use.

The framework is open to “anyone with an interest in creating new catastrophe risk models,” said the launch announcement. It’s owned by its members and is not-for-profit. It is designed to “bring down the cost of modeling, as well as providing transparency and greater flexibility for users.”

“We’ve been working on the development of an open source framework for catastrophe models for the last three years, but the idea for the project originated well before,” said Trevor Maynard, Head of Lloyd’s Exposure Management and Reinsurance team, in a telephone interview following the launch.

He explained that the Oasis concept breaks up catastrophe models into their respective components—hazard, vulnerability, damage and insured loss. Each one is assessed at various levels, and then integrated to give the clearest picture possible for any given set of risks.

“We [Oasis] can use proprietary models and/or academic models,” Maynard said, adding that the latter often have the additional advantage of “being free.” They are chiefly used to assess the “hazard” component, which is the starting point for further analysis.

As detailed on Oasis’ “Framework Component Diagram,” the analysis gathers data for a “Ground-up Loss Module,” which assesses such variables as location, frequency, intensity, etc. It then proceeds to analyze policy variables coverage and creates a “Financial Module” to give the most complete picture possible for any given risk.

Maynard pointed out that, as anyone can contribute data, and that data can be accessed by Oasis members, they have “more choice to simulate different outcomes.” He also noted that the “plug-and- play feature gives companies across the board access to all of the data available.” He described Oasis as a “community cat model, where everyone speaks the same language.”

Oasis is designed to operate as a set of plug-and-play components (technically, web services), which can be developed by any member, to meet many and various needs.

In the bulletin announcing the launch, the participants said the potential benefits for the industry include:

  • Better informed risk selection, pricing and capital allocation.
  • More focused reinsurance negotiation.
  • Support for regulatory compliance.
  • Wider choice, greater transparency and reduced cost in modelling.

In the written statement about the launch, Maynard said: “Oasis provides a global standard to allow model developers to interact worldwide and for insurers to rapid gain access to their insights.”

Greater Knowledge, Greater Choice

Breakthrough-Success-280x130Tom Bolt, director of Performance Management for Lloyd’s, said, “It is clearly key for the market to have model transparency and choice. Oasis…clearly adds to the pool of knowledge and gives choice to the market.

Dickie Whitaker, project director of the Oasis Loss Modelling Framework, said Oasis allows users to get their own view of risk. “Much as apps have revolutionized smart phones, so Oasis can revolutionize the market for catastrophe models,” he said.

Peter Taylor, technical director of Oasis, said: “The Oasis Framework reveals the uncertainties in pricing and capital adequacy following from variations in model and portfolio data and from within the calculations themselves. The quantitative insights into what we don’t know will help us make better informed decisions.”

Speaking to the flexibility of the framework, the announcement noted that members can put their own models into it, and also invite others, such as reinsurers, to run them. They are also able to develop models for sale or license to other users.

“Because Oasis materially lowers the cost barriers to entry, scientific and technical experts can provide fresh views on the scientific and building vulnerability aspects of catastrophe risk management,” said the group announcement.

The announcement pointed out that although the insurance industry is expected to be the main user of Oasis, the framework can be useful to others interested in natural catastrophes including risk managers in large corporations, governments and inter-governmental bodies.

Oasis has a website and also released a fact sheet with the names of the companies and organizations involved in the project and other facts (see below at bottom of the article).

In 2014 the cost of a membership, which is now open to all, is £20,000 [$33,200]. Oasis said that as other revenue sources come on stream, this figure is expected to reduce substantially. For this, members get direct access to the code and participation in the community working parties.

Paul Nunn, head of Natural Catastrophe Risk Modelling, SCOR Global P&C, commented that the Oasis framework “brings genuine innovation and choice to the catastrophe risk modelling landscape and is particularly welcome against a backdrop of increasing insurance industry requirements.”

Paul Miller, international head of Aon Benfield Analytics’ Catastrophe Management team, added, “The re/insurance industry requires catastrophe modelling solutions to deliver transparency and flexibility across peril models and software platforms. Oasis will assist in the delivery of such requirements and aid end users in developing a bespoke view of risk.”

Liability Models Next?

The announcement said that initially a number of commercial models will be available, including four for flood, (two for Great Britain plus Australia); three for earthquake (USA, North Africa and Middle East), Cascadia tsunami and Brazilian bush fire.

“Oasis covers different regions,” Maynard said in the phone interview. “If we don’t have the models, then Oasis can acquire them.” Cat models have become the starting point for businesses and re/insurers to analyze risks and potential coverages. Whether they are proprietary or built by academics, they will serve to increase the take-up rate for policies. This in turn will result on “less worry about disasters and more transfer of risks,” Maynard said.

It may even be possible to construct more accurate liability models for casualty coverage. It would also make establishing more accurate triggers for parametric models easier. “You can look at the uncertainty – explore the range of uncertainty,” Maynard said. He also noted that Oasis’ financial model makes it easier to “know the insurance process.”

Eventually with more members—”maybe even whole industries”—standards will be set that will enable all the interested parties “to talk to, one another, to take the models in as part of their business and to get comfortable with them, and have a direct line to the insurance industry.”

As a Lloyd’s executive, Maynard says he’s proud of the work and the expertise that the London market has contributed to building Oasis.

“There’s more ‘truth’ in the models,” he said, “and more information can now be shared.”