Risk Frontiers spins out of Macquarie University

By Professor John McAneney — CEO Risk Frontiers and Anna Game-Lopata — ANZIIF Writer | 18 Jul 2017
  • Reinsurance
  • Risk Management
  • Claims
  • Insurance Broking
  • General Insurance

For 23 years, Risk Frontiers has been at the cutting edge of catastrophe loss modelling, applying advances in technology and science to better assess the threats posed by some of the country’s most costly natural hazard events: cyclones, floods, bushfires, earthquakes and convective storms. 

In addition to its suite of home-grown loss models, Risk Frontiers has also been at the forefront of efforts to understand the social dimensions of these risks in ways to help make communities more resilient. These risk themes will continue to motivate the organisation’s new R&D agenda. 

The rationale behind catastrophe loss modelling

The early players in the catastrophe loss modelling space set up shop in the late 1980s in America, but it was not until Hurricane Andrew made landfall in Florida in 1992 that the true power of such modelling was recognised. 

Approaches to pricing natural hazard risks at the time relied very much on the proverbial underwriter’s moistened finger in the air and recent experience. 

Unfortunately, the weaknesses in this approach had not been exposed because the previous 20 years had been relatively benign with no intense hurricanes afflicting areas of high exposure. 

Missing from the traditional risk assessment approach was the geospatial understanding of where assets were located and knowledge of structural weaknesses of different kinds of buildings.

Natural catastrophe loss models, while primitive by today’s standards, took this into account and within hours of Hurricane Andrew making landfall, modelling pioneer Karen Clarke forecast Andrew’s insurance losses to be in excess of $13 billion, way more than Lloyds of London’s estimate of $6 billion. 

Months later when the final loss emerged at $15.5 billion, eleven insurance companies had gone bust. Clarke’s early estimate of losses following Andrew had proven to be reliable, and the utility of catastrophe models became fully apparent. 

Risk Frontiers is born

On the other side of the world in Australia, far-sighted individuals in the insurance sector also saw the benefits of catastrophe modelling, but were well aware that interests in the larger exposures of Europe, America and Japan would capture this development. 

Australia needed its own R&D capability in this new area of applied science. 

With this in mind, parties in the insurance sector reached out to the academic sector to see if there was interest in developing an independent research centre in the natural hazards space. 

Macquarie University Professor Russell Blong answered this call and a unique partnership between industry and academia was created. Launched in 1994, Risk Frontiers is now the longest-running natural hazards research centre in the country. 

It was initially funded by a group of sponsor insurance, reinsurance and reinsurance broking companies, which provided seed capital in the form of sponsorship. Representatives of these companies established an advisory board that exists to this day and which helps set Risk Frontiers’ research agenda.

While Risk Frontiers’ business model has changed somewhat over its 23-year history, much of its agenda today remains devoted to improving the management of natural hazard risks, including a significant commitment to risk communication. 

Spinning out on its own

Risk Frontiers is now a private R&D company under the ownership of the existing employees. CEO Professor John McAneney says risk is intrinsically fascinating. 

‘Its quantitative side is encapsulated in catastrophe loss modelling and insurance-related mathematics,’ Professor McAneney says. 

‘On the other hand, it also has important social dimensions. In spinning out of the university, Risk Frontiers seeks to realise our ambition to become the most credible independent source of risk knowledge, products and services in the natural disaster space across Asia Pacific.’ 

While the insurance sector remains a core focus of many of the activities at Risk Frontiers, Professor McAneney says the organisation’s multidisciplinary team also works closely with government, disaster management agencies, and supports international efforts to help manage disaster risks and improve the safety of communities.

He adds that several Risk Frontiers staff served as expert witnesses to the Royal Commission into the 2009 Victorian bushfires. 

‘The team has also made invited contributions to other key inquiries such as that into the 2010–11 Queensland floods and its work underpinned much of the Productivity Commission’s review into funding natural disasters and the role of government in the provision of natural catastrophe insurance,’ he says. 

Thought leadership and action

Risk Frontiers will continue to provide evidence-based thought leadership on topics encompassing better assessments of natural hazard risks, the potential for improved building codes and better land use planning guidelines to reduce risk.

‘Our research interests include risk communication, the detection of global climate change signals in loss data, post-disaster event investigations, estimating the economic costs of natural disasters and helping emergency service agencies in the development of risk management plans,’ Professor McAneney says. 

‘It collaborates closely with other research institutions, including the Australian Bushfire and Natural Hazards Cooperative Research Centre.’ 

New challenges, strong partnerships

Professor McAneney says Risk Frontiers has served Australia remarkably well and is set to continue expanding on this legacy of achievement as the world faces new challenges in a warming climate, as well as the current threats from natural and human-made risks.

‘In spinning out of the university, Risk Frontiers can be more commercial in some aspects of its business operations, while continuing to provide the rigorous science-based advice that its clients have come to expect. 

‘Strong relationships forged with key academics at Macquarie University will be maintained with the creation of a Risk Frontiers Fellowship Fund for joint collaborative research in natural hazards, as well as new endeavours in cyber security and machine learning.’

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