Risk Frontiers was established in 1994 by Macquarie University Professor Russell Blong. It was in the early days of catastrophic loss modelling. Over 20 years later, Risk Frontiers is now the longest running natural hazards research centre in the country.
Understanding natural disaster risks: bridging the gap between science and the private sector
Six of Australia’s eight most costly natural hazard events arose from different perils: a hail storm, tropical cyclone, an earthquake, a flood, bushfire and an East Coast Low. Over the last two decades, a unique approach to understanding and quantifying these risks has developed in Australia through a close relationship between the insurance and academic sectors. And by doing so Australia has been at the cutting edge in applying advances in technology and science to the benefit of the broader community.
Here we briefly explore this history and explain how Risk Frontiers continues to help insurers, communities and emergency services better manage and respond to natural peril risks.
Early players in the catastrophe loss modelling space first 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 rate maker’s moistened finger in the air and recent experience. Shortcomings with 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 approach was the bringing together of the science of the hazard with a geospatial understanding of assets and the structural weaknesses of buildings together with insurance policy conditions.
Natural catastrophe loss models, while primitive by today’s standards, did just this and within hours of Hurricane Andrew making landfall, forecast insurance losses to be in excess of $13 billion. Several months later when the final loss emerged at $15.5 billion, eleven insurance companies had gone bust and the utility of catastrophe models had become fully apparent.
On the other side of the world, farsighted individuals in the insurance sector in Australia also saw the benefits of catastrophe modelling, but were well aware that interests in the larger exposures of America, Japan and Europe would monopolise this development. The solution was to develop Australia’s own capability in loss modelling.
With this in mind, the insurance sector in Australia reached out to gauge interest in creating an independent research centre in natural hazards. Macquarie University’s Professor Russell Blong answered this call and in 1994 a unique partnership between industry and academia was spawned.
Risk Frontiers was initially funded by a group of insurance, reinsurance and reinsurance broking companies, who each provided seed capital in the form of sponsorship. Senior executives in these companies continue to participate in an Advisory Board, which helps set Risk Frontiers’ research and model development agenda.
Over time Risk Frontiers’ business model has changed and it is now an independent R&D company under the stewardship of Professor John McAneney. Driven by a desire to better understand risk and provide solutions for interesting, complex and practical problems, Risk Frontiers is well on its way to becoming the most credible independent source of risk knowledge, products and services in the natural disaster space across Asia Pacific.
While the insurance sector remains the core focus of many of its activities, Risk Frontiers’ multidisciplinary team increasingly works with government and emergency management agencies, as well as supporting international efforts to help manage disaster risks and improve the safety of communities. An industry Advisory Board peopled by representatives of partner insurance companies, reinsurance and reinsurance brokers continues to help Risk Frontiers set its research and development agenda.
Risk Frontiers provides thought leadership on topics ranging from the potential for improved building codes and land use planning to reduce risk. It undertakes research into risk communication, the detection of global climate change signals in loss data, post-disaster event investigations and estimating the economic costs of natural disasters. It is helping emergency service agencies improve natural disaster planning.
This unique research centre has served Australia remarkably well and continues to expand on a legacy of achievement as the world faces new challenges in a warming climate and man-made threats of terrorism and cyber risks in addition to natural disasters.