By ERIN GAZICA, a freelance writer from Pottstown, Pa.
Grab your notebooks and calculators. It's time to go back to the classroom for members of the Willis Research Network, billed as the world's largest partnership between academia and the insurance industry.
Since it was born three years ago, the WRN now sponsors research posts at more than 20 academic institutions, from Princeton and Cambridge, to Kyoto and Bologna. Their work delves into natural perils, climate change and the vulnerability of the man-made environment. More recently, WRN has begun exploring financial risk, law and liability, management and economics.
For example, WRN teams at Reading University in the United Kingdom and the Yokohama Earth Simulator in Japan have recently completed a run of 300 years worth of simulated global weather based on current conditions, using supercomputers that can simulate the earth's atmosphere and oceans.
"They have been able to successfully extract tropical cyclone tracks and some of their variables like track size and intensity signals," said Rowan Douglas, chairman of the WRN. "We're going to use that as a basis for developing an experimental tropical cyclone event set, which we will compare with the existing source of data based on historical records and see to what extent it might inform the view of current levels of risk."
In another example, the WRN has sponsored groundbreaking research at the University of Colorado about how demand surge after a major catastrophe varies by location, event type and other characteristics. Douglas said the research will help develop a methodology and ultimately a model to help insurers understand and quantify demand-surge risk within their portfolios.
Douglas, whose other title is managing director of analytics for Willis Re, said the venture came out of the recognition that it was time to further develop its catastrophe modeling and financial modeling capabilities and enter into a larger, more cohesive relationship with the scientific community. Willis initially approached seven U.K.-based universities with disciplines in natural catastrophe risk, seismology, engineering and geospatial mapping techniques, and funded fellowships with a handful of scientists.
The kicker? "The key thing was we said to our academic partners that we don't feel strongly about the need to own intellectual property rights over the research. This is going to be open, transparent, published research, and that was very, very important."
A brokerage firm that doesn't want to protect its research with concrete and fences and armed guards and alarms? How can such an agreement benefit a business?
"I think it's a little like the British at Wimbledon," Douglas said. "We may have a potential winner of our own, but the trick is to create the arena in Britain where people come once a year to watch tennis and be a part of it in that way."
To translate, by hosting and encouraging the collaboration and research in the WRN, Willis gets to be at the center of that expertise. Having an open-door policy might not allow the brokerage firm all the glory and ownership that would come its way if the research was private, but as Douglas sees it, the competitive aspect is overblown.
"The days have gone of trying to crack big challenges in a private way," he said. "Our competitors didn't necessarily recognize the benefits of being open, and actually the benefits of being open far outweigh the fear that somehow you're going to let some crown jewel out."
Not to mention that the academic professionals would have been much less likely to cooperate and buy into what Willis was offering had they not adopted such a progressive policy. But is it really worth the investment, especially in an economic downturn? Aren't there other areas where the time and money would be better spent?
For reinsurance brokers, one of their main areas of competition when it comes to winning new business or retaining current clients is in the power, reputation and distinctiveness of their analytics, said Douglas.
Ultimately, a reinsurance broker has to help insurance companies identify and evaluate their risks and help them effectively and with authority get those messages across to reinsurers, regulators and credit ratings agencies. According to Douglas, negotiating pricing and terms and conditions are somewhat of a given. Analytics are what sets a good broker apart from the rest.
"This is the emerging area where reinsurance brokers have to compete," he said.
But don't make the mistake of assuming the WRN is just a gimmick. For a project that's "just barely out of diapers," as Douglas put it, the WRN has had an impressive response from the industry. And it's grown quickly from its British roots at seven schools to more than 20 institutions around the world.
Nine governmental research institutions will soon be coming on board as well. Its initial focus on natural catastrophe risk has also expanded into areas like credit risk modeling and operational risk modeling.
"We have had the most remarkable engagement from our clients and market partners," he said.
"It's been incredibly valuable in helping us respond to our clients' challenges and provide solutions, whether it's how we help them manage the risk of a European windstorm and Northeast U.S. hurricanes, how we help them develop earthquake models where other models don't exist, to dealing with the challenges of extreme statistics."
Douglas is emphatic that the WRN has become an intrinsic part of the brokerage firm's analytics capabilities, that it is not some pet project done on the side for public relations purposes.
For example, the WRN meets formally four times a year in different parts of the world. At the annual meeting in July, Douglas said there were about 80 round-robin meetings between Willis' largest global clients and its research partners. Bringing clients directly to the academic professionals is something that few have been successful with, at least with the same broad base as the WRN.
The Aon Benfield Hazard Research Centre, based at University College London, has built a good reputation over the last decade or so. Being second into the game, Willis executives thought they'd have to do something special to make their mark.
"We decided that, if we are going to do something second, we were going to have to do it really big and fundamentally different," Douglas said. "I'm blessed with having senior management that said, 'OK, give it a shot.' I think it is paying off."
Douglas has a history of bridging the gap between the business world and the academic world. He founded WIRE Ltd., an intellectual broking company that arranged research between financial markets, especially insurance, and academia. Willis Group bought the company in November 2000 and after stints in e-business and capital markets, Douglas landed in his current posts with analytics and the WRN. His work with the WRN has not gone unnoticed. In September, Willis Re won the 2009 Analyst/Research category at the Review Worldwide Reinsurance Awards held at the Dorchester Hotel in London.
While he's pleased with the recognition, Douglas said the impact resonates far beyond Willis. The real value of the award is that the scientists can show their funding agencies that their research is having an impact in the wider world, which will in turn help science increasingly focus on areas of concern to the insurance industry.
October 15, 2009
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