By Ruari Rhodes, Senior Climate Change Analyst at Liberty Specialty Markets.

Introduction

Natural catastrophes, and particularly atmospheric perils, have long posed one of the greatest risks to the insurance industry. Every year, the global insurance industry pays out billions of dollars in claims for damage from natural catastrophes worldwide. Tropical cyclones generally cause the most damage per event, whereas severe convective storms can cause even greater losses when aggregated over the course of the year. Meanwhile extra-tropical cyclones, floods and storm surges can all cause catastrophic damage that the industry must prepare for to ensure it can pay all claims and remain solvent.

Atmospheric scientists play a key role in insurance, from building the models that help insurance companies to understand risk, to helping regulators determine which companies may be vulnerable to the impacts of a severe weather event. For the right individual, insurance offers a highly rewarding career, but the variety of roles available and the language used within the industry can be difficult to navigate. This article will explore the roles and skillsets required for Atmospheric Scientists looking to work within the insurance industry.

My background

My career in the London insurance industry started after finishing my PhD in 2017. Since then, I have worked in several research and development roles with various carriers (see later definition), from flood research and model validation at Hiscox, to a combined software development/model validation role at Argenta, to my current role as the climate change subject matter expert at Liberty. During my time in insurance, I have been able to keep up with cutting-edge science, whilst improving my coding skills in a number of languages. I have even had the opportunity to travel, with a number of academic and industry conferences under my belt, allowing me to hear fresh viewpoints and really add value to my team.

My academic background started with a BSc in Natural Sciences, followed (after a short break working in in another industry) with an MSc in Applied Meteorology and a PhD looking at the impact of clustering and stalling of extratropical cyclones on rainfall extremes in the UK. I first became aware of the need for atmospheric scientists in the insurance industry during my master’s degree. I was always keen to work on the threshold between academia and industry, and when it came to choosing my PhD, I naturally gravitated towards an industry-sponsored programme, with Lloyds Banking Group acting as my industry sponsor. 

What is a cat model?

A cat(astrophe) model is the main tool used in the industry to evaluate risk and examine losses. These models combine the best of our knowledge of physical hazards, engineering vulnerability, and financial terms to model a company’s likely distribution of losses. Typically, a cat model will simulate between 10,000 and 100,000 years’ worth of plausible events. The insurer then plugs in details of the insured risks and the financial terms of their contracts, and the model produces a range of statistics, including average annual loss and exceedance probability (“return period”) curves. 

Uses of catastrophe models (and other hazard models) in insurance include:

Helping the underwriters and actuaries[BW1] [RR2] [PM3] [1] to understand the likely average annual loss to their portfolio from a certain type of hazard (pricing).Helping to understand how large a loss could become in an exceptional year, so that sufficient funds can be held back to pay claims (capital reserving).Helping to build the portfolio (collection of insurance contracts) in such a way that it is not over-exposed to a particular hazard, monitoring that the guidelines are being adhered to, and identifying if any unexpected risks are developing (exposure management).Demonstrating to regulators and investors that the company is adequately prepared for all likely eventualities (reporting).Monitoring the resilience of regulated companies to certain hazards (regulatory).

As atmospheric scientists we tend to contribute most heavily to the physical hazard component, working with specialists in engineering and actuarial science for the other components. However, it is almost inevitable that we are asked to try our hand at all components at some point, and a good cat modeller will make sure to learn at least the fundamentals of all aspects of the model.

Where can atmospheric scientists work in insurance?

Almost anywhere! All parts of the industry use hazard models of some sort. The type of work and the level of education/experience varies by company and sector. The following is a brief description of the various types of companies:

Carriers

Insurance carriers are at the front line of the industry. These are the organisations that “underwrite” business and “carry” the risk. Carriers range greatly in size, with some companies remaining smaller and specialising in a certain type of business, while others are larger and more generalised. A carrier may either be a primary insurer (providing coverage to a client either directly or via a broker), or a reinsurer (providing coverage for other insurance companies in the case of very large loss events). In the London Market, where complex “specialty” insurance products are written via Lloyds of London, carriers are often referred to as “syndicates”. Carriers traditionally tend to be more focussed on running and interpreting the cat models than performing in house research and development (R&D), although increasingly larger organisations do carry out some R&D in-house.

Brokers

Brokers are the intermediary between carriers and the clients. While some carriers will provide “retail” insurance services directly to their customers, in the London Market—where specialist cover is underwritten—it is common to place insurance coverage via a broker, due to the high value and complex nature of specialty insurance. 

Brokers provide a variety of services for their clients, including outsourced modelling, model validation, and expert insight into all aspects of insurance and cat modelling. Cat modelling teams at brokerages are often expected to provide expert guidance in emerging risks such as climate change, and to provide evidence-based views on the strengths and weaknesses of the various catastrophe models available on the market. 

Brokers will typically have both research and operational teams; either way they deal with a lot of external clients and must be good at prioritising workload and working to tight deadlines. Broker cat modelling roles have similar requirements to those at a carrier, but the audience is different, and they work with a wider range of data and models than a typical carrier.

Regulators

Regulation is a core part of the insurance industry. The regulators exist to ensure that all parties in the industry are trustworthy, acting with integrity, and sufficiently stable to continue to pay claims in the most extreme of circumstances. Regulators use cat models to ensure that the market as a whole is resilient and that there are no weak links in the chain, and they also evaluate cat models to ensure that they are fit for purpose. It is also important for regulators to keep an eye on emerging risks such as climate change, and to help the industry to understand how to react appropriately and to prepare for change as it happens. There are a number of subject matter expert roles in this capacity, as well as more generalist modelling roles.

Model Vendors

The vendors are at the heart of the cat modelling industry, and typically bring together the highest concentrations of natural hazards experts, as well as specialists in engineering, finance and software development. At a model vendor, roles can be quite varied. They may include building and calibrating components of the cat models, liaising with clients [HM4] [HM5] [RR6] [PM7] and ensuring that their needs are met, performing research and validation projects for clients, or providing event response, using the models and expert judgement to provide estimates of the magnitude of events as they happen. 

What qualifications do I need?

The required qualifications vary by employer, and the most important things are an ability to demonstrate interest in the subject, willingness to constantly learn new skills and adapt to new challenges, and a self-motivated attitude to work. However, the following can be used as a rough guide to the type of work suited to each qualification level as an atmospheric scientist in insurance:

No degree

Most people in this field do enter as a graduate, but there are an increasing number of internships available to learn on the job. There is likely less control over the type of work being done, but a good internship scheme should demonstrate a wide variety of projects and can really help to launch a career.

Bachelor’s

A bachelor’s graduate will generally get started either on a graduate scheme with a larger company, or with on-the-job training as an operational cat modeller in a smaller company. In time the role will likely become more specialised according to preferences and skill set, but initially there would be a broad range of tasks to tackle.

These roles tend to be fast paced with tight deadlines and require a lot of teamwork. An understanding of atmospheric perils is useful, but there will be a quick learning process about the insurance industry and how catastrophe modelling is used to add value to the underwriting process.

Master’s

In addition to the operational roles available to a Bachelor’s graduate, a master’s degree may open up some more specialist roles such as event response or client liaison. A master’s graduate should be able to use the additional knowledge and skills learned during their course to advance into more specialist roles such as R&D following some on-the-job training.

Doctorate

Most roles in R&D and model development require a PhD, or significant on-the-job training. Model vendors and larger insurance companies will be interested in the specialist knowledge obtained during the PhD, especially if it is related to atmospheric hazards, and transferrable skills such as data analytics and coding are useful in most career paths. 

These roles tend to revolve around larger projects with longer deadlines and a large degree of autonomy. Whilst a specialist subject will be useful, someone at this level should expect to learn about a wide array of perils, as well as fundamentals of insurance.

Why work in insurance?

For me, insurance was an opportunity to apply the knowledge and skills that I acquired in academia to real world problems. I was keen to stay in a research-focussed world and to work with a high calibre of people whom I could continue to learn from, but also a role where I could hit the ground running and feel that I was making a real difference. In my R&D-focussed roles, I have always been encouraged to attend conferences to keep my knowledge up to date and to maintain my network, both within the industry and in academia. It is also possible to find roles with strong collaboration between academia and industry, which tend to have opportunities to publish original research.

The pace of work within the industry means that things are rarely dull, and there is always the opportunity to jump on a new project and learn a new skill. In my first position in insurance, I was able to share and develop the coding skills that I had learned in academia, as well as developing my understanding of natural hazards and bringing value to the company as a subject matter expert. This in turn meant I could help to develop the technical skills of my entire team and opened doors for me in development-focussed roles.

At first, I found the transition from academia to insurance quite daunting, having heard stories of long hours, burnout, and poor working culture in the City. For the most part, I have found that the industry isn’t really like that. While the hours can sometimes be long, it is usually very manageable. At the moment, there is a big focus on inclusivity and work life balance around the London insurance market, and companies now face severe sanctions for permitting toxic environments to develop. 

There are so many potential career paths available that take advantage of the skills and knowledge developed in academia. For someone who works hard, learns fast, and is open and honest when inevitably there is something that they don’t know, a career in insurance can be really fulfilling.

Where next?

The industry is constantly evolving. Emerging risks come from all sides; climate change is currently of great interest to the industry, and this is likely to remain the case for a long time yet. With the advent of new tools and an ever-increasing body of knowledge to draw on, the industry needs experts in atmospheric science now more than ever.

Whether science communication is your thing, you prefer deep thinking, or you are an expert at coding and handling large volumes of data, you are bound to find a career path within insurance where you can provide real value.