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Nasdaq Tech Spotlight: Challenges in the Catastrophe Risk Modelling Market

Discover the challenges in the catastrophe risk modelling market featuring Matthew Jones, Head of ModEx Product at Nasdaq, and James Lay, Commercial Director of ModEx at Nasdaq.

Nasdaq Tech spotlights ModEx featuring Matthew Jones, Head of ModEx Product at Nasdaq, and James Lay, Commercial Director of ModEx at Nasdaq. Jones discusses key challenges in the insurance catastrophe risk modelling market, while Lay outlines the benefits of using models available on Nasdaq ModEx - an independent, multi-vendor catastrophe risk modelling platform. Below is a transcript, which has been lightly edited for clarity.

Q: Matt, what are the key challenges you see in the re/insurance cat risk modelling market?

Matthew Jones: There are many challenges in the catastrophe risk modeling market. We've written a white paper on this subject, so I would encourage you to take a look at that if you're interested. But the two challenges I want to highlight right now are the challenges of cost and choice. The overall cost of catastrophe modeling is really high for a couple of reasons. One is that in a duopoly market, as you can imagine, license fees are very high. That's inevitable in such markets. But also, the infrastructure - the servers, the computing equipment that goes with these catastrophe models - is significant. The cost of buying, deploying and running such servers, along with the IT project costs, can be significant. So, cost is a challenge.

Choice is also a challenge, one of the reasons is that currently, a set of models from one vendor will be on the platform for that vendor. If an insurer, reinsurer or broker wants to change models, they have to change platforms. If they want to add a new set of models, they have to add a new platform. And that's another costly IT project. What that means is it is very hard, actually, to change models or to add new models, and that limits the choice available to insurers, reinsurers or brokers. It essentially limits their ability to change or to improve their view of risk, which we view as a bad thing.

Q: How is ModEx helping the re/insurance industry meet current challenges?

MJ: ModEx is helping meet some of these challenges by providing a much better choice of models in a much easier way to end-users like insurers, reinsurers and brokers. So, the very fact that multiple vendors of these models can put their models on the same platform means that now insurers, reinsurers and brokers don't need a complicated IT project to swap between different models. They can switch on or off models very easily, and this increases the choice available to the market.

ModEx also provides a much more efficient route to market for new firms that want to build models. We also see that new firms, maybe groups out of academia, that have good knowledge in a certain area of science or engineering, now have a route to market for their products. So, we're seeing it encouraging new participants in the catastrophe risk modeling field, which we think is a very positive thing.

Q: James, if you are an insurance or reinsurance firm, what are the primary benefits of using ModEx?

James Lay: If you're a reinsurance firm or an insurance firm or insurance broker even, the benefits of getting involved with ModEx are that you suddenly get access to a really wide community, a vibrant ecosystem of model developers and providers. We already have around 10 different independent providers on our platform, and that number will continue to increase. That will, over the course of the next year or so, mean that we'll have several hundred potential model perils covered within the ModEx system. There's a huge value there. You've got one platform to access one system of financial modeling underneath it. And you've got access to a plethora of different modeling companies, some of which are arguably the best in their field.

Q: If this sounds interesting, how do you get started with Nasdaq ModEx?

JL: There's a number of ways that clients can get involved with ModEx, one of the ways that is gaining a lot of traction is the opportunity to actually evaluate and test some of these models on the ModEx system. There are three good use cases for that: You get to test the model itself, have a look at the underlying science behind it and check that the losses make sense for your portfolio, you can check the Oasis modeling framework and get access to how the Oasis components work underneath, and you get access to the ModEx user experience. This is all something that we provide as a free of charge service. So, I'd say that is a really effective way of getting involved and getting some good grounding with the product.

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