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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

A corporation is eyeing a project in the Gulf of Mexico. It's a large project, and sensitive, so we'll let you guess which industry is involved and imagine the zeroes cramming in behind the dollar sign. With an investment such as this on the line, the firm wants to make sure they build the facility right--with hurricanes in mind.

To answer these questions, the company brought in the Catastrophe Risk Engineering practice at modeler AIR Worldwide Corp. Led by Director Akshay Gupta, the CRE practice is helping the client analyze two development options that are very different from a catastrophe risk point of view.

The AIR engineers are evaluating how either development option would perform against the hurricane events that could happen over the course of the next 50 to 100 years, gauging not just the potential physical losses but also the business interruption hit.

In classical risk analysis, says Gupta, one would look at a facility as a whole. But what he and the CRE experts are doing with this client and others is looking at such facilities as aggregates of their smaller parts. So it's more like--how will these individual parts fare during a storm and how will their survival (or failure) affect the larger structure and operations?

Gupta only started at AIR back in August 2008, but he has already put into place a business plan for the fledgling CRE practice that takes it out past 2012, aiming the whole time for growth in terms of clients and industries. "We have a pretty aggressive growth plan for the practice," he says. "The line is pointing upward pretty steeply."

One reason the San Francisco-based CRE practice can take off running is that Gupta's done it before. A licensed professional engineer, certified in structural engineering with a Ph.D. from Stanford University, he's investigated hundreds of structures struck by hurricanes and quakes. The last decade of his work, prior to coming to AIR, he spent with Menlo Park, Calif.-based Exponent Failure Analysis Associates, where he most recently headed the Buildings & Structures practice.

The other reason that Gupta feels confident about CRE's future--and one of the reasons AIR launched the practice--is the demand for such services.

AIR was getting requests from clients, and, at his previous employer, Gupta also came across risk managers and property owners who were looking for this kind of service. There is a "critical need" for a way to determine what an organization's true CAT risk is, down to the individual site level. Assets in corporate portfolios are getting more complex day by day, Gupta explains.

The CRE practice at AIR is not the first explorer sailing into these waters. Competitor modeling firm Eqecat Inc. is a subsidiary of ABS Group and can offer clients the engineering and technical expertise of sister company ABS Consulting. The other "big three" modeling firm, Risk Management Solutions Inc., partners with engineering firm Thornton Tomasetti to provide clients with such services.

And structural engineering companies, like Arup, and risk consulting firms, like Global Risk Consultants, are also making big pushes for the business of corporate risk managers.

With these other players in the market, Gupta is quick to differentiate what the AIR Catastrophe Risk Engineering practice can now deliver. Risk managers and facility owners are looking for a solution that balances detailed structural engineering and insurance.

"They needed to be able to evaluate the options available to them, whether they be financial based or engineering based," Gupta says. "And that we felt was lacking."

AIR's "end-to-end" solution, according to the CRE head, can deliver "detailed engineering" to match any structural engineering firm, as well as the modeling capabilities to turn that technical information into actionable intelligence.

"At a very simple level, it is marrying detailed engineering with state-of-the-art hazard modeling and network loss analysis," Gupta says.

In other words, what's the CAT exposure for a given facility and how much will insurance cost in its current state? In addition, how will a total retrofit, or partial ones, affect the insurance program? Given the stakeholder's risk appetite, the consultation could involve coming up with a partial retrofit that will allow the client to buy insurance, say, for only half of the max potential loss.

"That may be the best solution given what your ultimate goals are," says Gupta. The CRE practice, with its soon-to-be total of seven engineers, can also provide post-event damage assessments.

The one thing that Gupta concedes his new unit might not able to do is design. So if his CRE team comes up with a mitigation solution for one of your facilities, for instance, it might be better for you to still go to a classic design and engineering firm to do the blueprints and the construction. AIR is not going there.

Current modeling clients of AIR do not have to worry about this new focus on catastrophe engineering taking away from their resources. In fact, the new work could ultimately benefit AIR model users. The real-world information gathered during CRE fieldwork is "fed" back into the models, allowing AIR to come up with new, and better performing, models for the rest of the "insurance food chain," says Gupta.

May 1, 2009

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