Risk Consultancy of the Year: Willis Towers Watson
Willis Towers Watson's (WTW) risk division has helped a number of clients this year, but work done by some of its US team to help the government of Morocco manage its earthquake risk was a particular standout.
The Solidarity Fund against Catastrophic Events (FSEC) is a public entity established for the purpose of mitigating the economic and social impacts of catastrophic events in Morocco. It provides compensation to the uninsured – often the most vulnerable.
WTW was tasked with creating a parametric earthquake risk transfer solution for the FSEC which required estimation of liability risk on uninsured residential properties where payment triggers were based on an objective measure of hazard intensity, rather than actual claims.
Using an existing stochastic earthquake catalogue containing approximately 18,000 damaging events in Morocco over a 10,000-year simulation, WTW was able to design and test a range of index function relationships and determine a best-fit with the underlying FSEC risk curve.
It is one of the first examples of this type of trigger applied to a sovereign-level public fund. Coupled with the ability to assess the index outputs stochastically against a fully modelled loss, the scheme is a highly robust calibration rarely achieved before for this type of programme and region.
The innovative solution was achieved at scale and pace, at highly advantageous pricing for the client, and crucially for something that would either have been uninsurable on a traditional indemnity basis, or very much more expensive because of the uncertainties involved.
The product ultimately supported the establishment of a three-year cover with a $275m annual aggregate limit and enabled FSEC to hedge out a substantial proportion of risk they would otherwise be retaining.
As a result of WTW's efforts, the programme improved resilience for the people, government, and economy of Morocco.
Simon Young, a senior director at Willis Towers Watson's climate and resilience hub, says: "We've seen a steady increase in the use of parametric risk transfer instruments over the last couple of decades, with an expanding set of use-cases across both public and private sectors and in both developed and emerging economies."
While Willis Towers Watson expect the growth rate of parametric risk transfer instruments to increase significantly, he says that will happen over many years, rather than one year.