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The business of weather and climate risk assessment

Riha, S.

1 Introduction

This post takes a look at the type of businesses that buy or sell catastrophe models. We explain what catastrophe models are, and summarize recent efforts by private and public stakeholders to create an open-source software framework for catastrophe modeling (Oasis LMF). Finally we presents a list of companies providing geophysical data to the insurance industry. The types of services range from the distribution of raw geophysical data, over delivery of forecast data and alert services, to turnkey catastrophe models and risk assessment tools. The list is not comprehensive, and the authors are not experts in the field. We appreciate any comments.

2 Catastrophe models

Catastrophe models are tools to enhance the understanding and management of risk. They originated from an attempt to apply the science of natural hazards to the property insurance industry (Toumi and Restell, 2014). A changing climate combined with an increase in population densities and property values in hazard prone areas spurred refinements of catastrophe models since their early days in the 1980s. Catastrophe modeling technology is now used extensively by insurers, reinsurers, governments, capital markets and other financial entities (Toumi and Restell, 2014). There exist insurance and reinsurance brokerage firms which are dedicated exclusively to weather risk management (Meteo Protect, 2017).

A sketch showing industries affected by weather risk.
Figure 1: A list of industries affected by weather risk. In this note we focus on companies providing the insurance industry with weather and climate intelligence, ranging from raw geophysical data to turnkey software applications and consulting.
Components of a catastrophe model.
Figure 2: A sketch showing key components of a catastrophe model used in the insurance industry.

Koba (2014) reported that there may be about a dozen companies in the U.S. that provide a high-end weather risk management, with around 50 or so in a mid-level range and probably a hundred offering lower-end services. We searched the internet in an attempt to find as many of the high-end companies as possible, and present the resulting list in the following. We appreciate any comments.

3 OasisHub

OasisHub describes itself as the global window to free and commercial environmental and risk data, tools and services (OasisHub, 2017). Its objective is to provide a set of tools that allow analysis and pricing of risk from extreme events, ultimately increasing the penetration of insurance and the application of catastrophe models beyond the re/insurance industry to other sectors requiring risk management (Trabacchi and Tonkonogy, 2016). We gathered information about OasisHub to obtain an overview of its history and current development. Readers looking for more detailed information are referred to Trabacchi and Tonkonogy (2016), which we found to be the most recent and comprehensive source available. Another recommended source is the Oasis+ business plan of Climate-KIC.

3.1 Project structure

The structure of Oasis is sketched in Fig. 3, and the interacting agents are listed in the following:

  • Oasis LMF Ltd is a non-profit company developing the LMF framework software.
  • OasisHub is a for-profit company managing the e-Market of the same name (Trabacchi and Tonkonogy, 2016);
  • Oasis Palm Tree disseminates the Oasis LMF software beyond the insurance sector and offers training courses (Trabacchi and Tonkonogy, 2016).
  • We refer to the three entities above collectively as the Oasis Family
  • Climate-KIC is a public-private innovation partnership focused on climate change, funded by the European Institute of Innovation & Technology (EIT) .
  • The Oasis Consortium is a group of entities funding the Oasis Family. It consists mostly of:
    1. Private companies from the insurance industry and and risk modeling sector
    2. Public research institutions
  • Catastrophe model providers are companies which sell geophysical data, exposure data and associated risk analyses. We compiled a list of large and small (niche) companies below.
Structure and relations between stakeholders of OASIS.
Figure 3: The relations and interactions between stakeholders and catastrophe model providers. The insurance industry fosters the diversification of catastrophe models, leading to an increase in supply, transparency and modularity. Increased competition between model providers results in lower modeling cost for the insurance industry. Risk-informed planning and decision-making is becoming a necessary business practice outside of the (re-)insurance industry, and model providers adapt to (and benefit from) this trend by increasing the diversity and modularity of their models.

3.2 Timeline

A chronological list of notable events published by various sources.

  • 2011: Start of project Open Access Catastrophe Model (OASIS) at Climate-KIC (Climate-KIC, 2011).
  • 2014: Insurance Journal reports the launch of the Oasis catastrophe model framework. The framework is owned by the members of the Oasis consortium, consisting of twenty-one insurers, reinsurers and brokers. Insurance Journal states that the cost of membership in the consortium is $33,200 (in 2014).
  • 2016: The Global Innovation Lab For Climate Finance (The Lab) endorses Climate-KIC's OASIS project as a suitable financial instrument that enables climate adaptation in developing countries ., a consortium of several governments ( Trabacchi and Tonkonogy 2016; Climate-KIC 2016).
  • 2017: Climate-KIC announces the Climate Risk Information (CIR) flagship program, with a funding of €1.5M (Climate-KIC, 2017). The overall objective is the integration of data analytics to new insurance business models and financial instruments, building on the Oasis open-source loss modeling framework Oasis LMF . A specific objective of CIR is the creation of an online marketplace for climate risk models and data. One result of this effort is the OasisHub portal.
  • 2017: Climate-KIC announces a Massive Open Online Course (MOOC) offered by Oasis LMF.

4 List of weather risk companies

Verisk
  • Verisk owns AIR Worldwide and AER, both of which are detailed below.
AIR Worldwide
  • Sector: Internet software and services, with a focus on web-based risk modeling software and consulting services (Bloomberg, 2017a). AIR is owned by Verisk . According to Waite (2014), AIR develops one of the three most commonly used natural catastrophe risk models (Touchstone™ ) for the insurance industry.
  • Customers: insurers, reinsurers, retail and wholesale brokers, capital markets, crop insurers, reinsurance intermediaries, corporate risk managers, and government customers worldwide (Bloomberg, 2017a)
  • Number of employees: 600+ (AIR Worldwide, 2017)
RMS
  • Sector: Software, with a focus on catastrophe risk modeling solutions (Bloomberg, 2017g). According to Waite (2014), RMS develops one of the three most commonly used natural catastrophe risk models (RMS(one)® ) for the insurance industry. RMS is owned by DMGT .
  • Customers: insurers, reinsurers, financial institutions, corporations, governments, and other non-governmental organizations (Bloomberg, 2017g).
  • Number of employees: Reports range from 1000+ (RMS, 2017) to 5001-10000 (Crunchbase, 2017c)
CoreLogic
  • Sector: Internet software and services. Property and real estate information, analytics and services for businesses and the government ( Bloomberg 2017e; Crunchbase 2017a). In 2013 they acquired EQECAT, which develops one of the three most commonly used natural catastrophe risk models (Waite, 2014). The product is now distributed as part of the CoreLogic Catastrophe Models (CoreLogic, 2017).
  • Customers: insurers, reinsurers, financial institutions, corporations, governments, and other non-governmental organizations (Bloomberg, 2017g).
  • Number of employees: unknown
Weather Analytics
  • Sector: Commercial services and supplies. Weather Analytics provides historical, current, and forecast weather data (Bloomberg, 2017h). They produce a risk analysis and portfolio management tool for underwriters, a forensic tool for insurance claims, a weather forecast notification system. They also offer access to their physical data via an API. According to Crunchbase (2017e), Weather Analytics raised more than USD 32M of funding since its foundation in 2004.
  • Customers: insurance, engineering, construction, energy, risk trading, government, agriculture, research institutions (Bloomberg, 2017h)
  • Number of employees: 11-50 (Crunchbase, 2017e)
Speedwell Weather
  • Sector: Financial services. Speedwell Weather provides weather and settlement data to the weather risk market (Speedwell Weather Limited, 2017). It also provides software for pricing weather risk contracts and portfolio management. The company represents the non-FCA-regulated trade and assets of Speedwell Associates Ltd, which also operates weatherXchange . weatherXchange allows users to structure and receive quotes from Protection Sellers to hedge their weather risk ( weatherXchange Limited 2017; weatherXchange Limited 2017). The product is FCA-regulated.
  • Customers: Insurance, banking, energy and agriculture (Speedwell Weather Limited, 2017)
  • Number of employees: unknown
Riskpulse
  • Sector: Internet software and services for supply chain & logistics and commodity investors (Crunchbase, 2017d). Riskpulse originated from a merger between Stormpulse and EarthRisk (Holley, 2017). Both companies sold weather information to businesses. Apparently Stormpulse's focus was on supply-chains & logistics, whereas EarthRisk served investment companies involved in commodity markets (Holley, 2017).
  • Customers: Riskpulse offers solutions for energy and agriculture commodities trading, lean manufacturing, food and beverage shipping and business continuity monitoring.
  • Number of employees: 11-50 (Crunchbase, 2017d)
Planalytics
  • Sector: Commercial Services and Supplies. Planalytics provides business weather intelligence to companies to optimize the impact of weather (Bloomberg, 2017f). Founded in 1996, the company sees itself as pioneer of climate-driven solutions (Planalytics, 2017b).
  • Customers: Fast food chains, food and beverage producers, hardware chains, pharmaceuticals, pharmacy chains, utilities, insurance companies, battery manufacturers, outdoor power equipment manufacturers, climate control product manufacturers, and others (Planalytics, 2017a).
  • Number of employees: 51-100 (Crunchbase, 2017b)
The Weather Company
  • Sector: Commercial Services and Supplies. Provides weather-driven business solutions for several sectors through television, online, mobile, and tablet applications (Bloomberg, 2017d). In 2016, The Weather Company’s B2B, mobile and cloud-based web properties, weather.com , Weather Underground ,The Weather Company brand and WSI (its global business-to-business brand), was sold to the Data and Analytics Platform business unit of IBM ( The Weather Company 2016; Wikipedia contributors 2017).
  • Customers: Agriculture, Aviation, Broadcast, Media, Chemical & Petroleum, Energy & Utilities, Financial Markets, Government, Ground Transportation, Insurance, Media & Entertainment, Retail, Telecommunications (The Weather Company, 2017)
  • Number of employees: unknown
WDT Weather Decision Technologies
  • Sector: Commercial Services and Supplies. Weather Decision Technologies, Inc. provides weather analytics and decision support services (Bloomberg, 2017i). Their services include
    • Real-time weather monitoring and alerts for assets including live events and marine and coastal operations. 24/7 live access to in-house forecasters
    • Data services for data scientist and developers
    • Historical and forecast data for the energy trading industry
    • Mobile applications for the end-consumer (weather forecasts)
    Interesting detail: Their website has a link called Forecast Verification Summary in the Corporate Info section. Very impressive.
  • Number of employees: 51-100 (Crunchbase, 2017f)
Baron Weather
  • Sector: Electronic Equipment, Instruments and Components (Bloomberg, 2017c). The company's original core business seems to be weather radar construction and maintenance (Baron, 2017a). They also provide data visualization, modeling and weather data services to the aviation and transportation industries, public broadcasters, the education sector and the insurance industry, including data processing, visualization, weather prediction and detection, and distribution. They offer APIs to software developers (Baron, 2017b).
  • Number of employees: approximately 100 (Baron, 2017a)
AER Atmospheric and Environmental Research
  • Sector: R&D in science and engineering, with focus on atmospheric and environmental research (Bloomberg, 2017b). AER is owned by Verisk . AER develops applications for the insurance sector in collaboration with their parent company Verisk . Via Verisk, they offer
  • Customers: NASA, NOAA, and other U.S. civilian and defense agencies (Verisk, 2017, p. 20). Data from USA Spending (2017) suggests that the defense sector is by far the largest source of public funding, at least during the past 5 years. The company seems to have been contracted for fundamental scientific research in the past.
  • Number of employees: ~200 (85 PhD) (AER, 2017)
  • Total funds awarded from U.S. government in fiscal year 2016: USD ~10M. (Defense 5M, NASA 2.3M, NSF 0.6M, DOE 0.4M, DOC 0.3M) (USA Spending, 2017)

In the following we list some more companies without detailed snapshot. Some of these seem to be smaller, and some don't focus on weather, but e.g. earthquakes. The majority of these companies is retrieved from OasisHub .

References