Academics like Ned Field, a Ph.D. with the Earthquake Hazard Program of the U.S. Geological Survey, have high hopes for open-source modeling software. The tools could be Web-based and tap into online scientific data, then double back and allow users to apply it to their own portfolios. That would provide real-time analysis that is unheard of with current models, where reinsurers use data that is months if not years old.
An open-source earthquake model, for instance, could allow insurers to gauge their exposure to a possible aftershock, immediately following the first shake. Or for hurricanes, risk managers could apply an open-source model to calculate their chances of exceeding their wind deductible in the next year.
The potential for these "living" models "is here," said Field, speaking in Tampa, Fla., at the RAA Cat Modeling 2008 seminar. Field is the leader of the Open Seismic Hazard Analysis, or OpenSHA, project, an open-source model in the making.
"We try to make the framework as simple as possible," he said. He added that all of the "black box" secrets of his model can fit onto one page (or PowerPoint slide in the case of his presentation). Ask the for-profit modeling vendors to do that.
The open-source model gets its power from the fact that it's based on shared software, standardized data, and plug-in-play operability. Field likened the ability of an open-source model to tap into any number of the other tools and databases out there as similar to building with "Lego pieces."
Among an audience of about 350, mainly made up of modeling vendors and analysts, reinsurers and insurers, the idea got some support.
"Let's increase transparency, let's increase standardization," said Martin Bertogg, head of the earthquake team for Swiss Re.
And a new initiative from ACORD will also work in part to make shared modeling a possibility through data standardization for the property line. But the downside of the open-source model emerged when Field lamented that he wouldn't know how to fit it into the proprietary business models already available. And as such, he said, the modeling vendors have not encouraged his work.
Paul VanderMarck, chief products officer of No. 1 modeler Risk Management Solutions Inc., was asked, "Is there room for a fourth, open-source model in the market?"
"Not on this stage," was his answer. Next question.
April 1, 2008
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