INTERVIEW: ADAM PODLAHA, AON
A passion for uncertainty: Aon’s Impact Forecasting mission to evolve
The science behind loss forecasting is developing and evolving faster than ever—but at its heart is how to measure and manage uncertainty, says Adam Podlaha of Aon.
The more models and inputs the better—for any peril. That is the ethos of Adam Podlaha, head of Impact Forecasting at Aon, discussing the work his team has been doing around loss forecasting for various perils globally. The Aon unit is looking to offer credible alternative views for the major territories, including the US, Europe, and Japan, while exploring the potential in emerging markets.
“A common misconception when it comes to risk models and loss forecasting is that one number is better than many numbers,” Podlaha says. “That is because people don’t like uncertainty. I would say the contrary—for me, uncertainty is my passion. If you want to be certain about the weather forecast, you won’t check just one, you will check many. That is what Impact Forecasting does .”
He stresses that, for some events, the uncertainty—the variation between models—reduces over time. Many days before a hurricane makes landfall, for example, this variation will be greater. As it gets closer to landfall, it reduces.
Podlaha explains that by understanding uncertainty and being open to using a greater number of inputs, our skill in loss forecasting improves.
“Only by measuring it can you start to increase your understanding, leading to making more informed decisions,” he says. “Let’s say you use 11 models: the spread between the maximum and the minimum is in fact the measure of the uncertainty which, if mixed with experience, delivers the desired output.
“If you have only three models, the uncertainty may be narrower but it’s simply less complete information.
“Engaging with academia allows us to apply the latest science and transform it into a loss view.”
Adam Podlaha, Aon
“But that doesn’t mean you quantified it better. It just means that you are unaware what’s happening. It is better to include as many credible models as possible and then visualise the uncertainty, applying judgement.”
That is why, Podlaha says, his team seeks to utilise as many models as possible. Impact Forecasting is collaborating in many areas with academics and other institutions that can offer additional insights into risks, and this is valid especially for modelling for climate change.
“Engaging with academia allows us to apply the latest science and transform it into a loss view,” he says.
A new climate for modelling
One of the hottest topics on Podlaha’s radar at the moment is how climate science can be integrated into models. He notes that every model now linked with atmospheric perils includes a climate change option. These are becoming increasingly sophisticated, but their accuracy varies by territory and peril, and there are many approaches to integrating climate science—hence more uncertainty.
This is an area with even greater collaboration. Universities, he notes, have some of the best data and supercomputers to help model climate change. “In general the approaches consider what alternative global conditions might bring in terms of possible losses.
“That feeds into our systems in quite a simple way, but a lot of computer power is needed for it.”
“The approaches consider what alternative global conditions might bring in terms of possible losses.”
A game-changer in this space in recent years has been the continued development of the Oasis Loss Modelling Framework (LMF), an open-source platform for developing, deploying and executing catastrophe models. Impact Forecasting’s catastrophe modelling software, Elements, uses Oasis model formats and has the option to use the Oasis LMF engine, allowing re/insurers access to a range of Impact Forecasting and third party model providers.
“It enables people to analyse models and their outputs in a more structured and standardised way. It lowers the barriers to entry and creates a community around Oasis. We are all part of a community that develops Oasis, but it also allows academia and smaller vendors to be involved, and it creates a lots of standardisation,” he says.
“That has been great for the industry. We are proud to be part of it—but that is just one way we deliver to clients. Our aim is to offer a credible alternative view on loss forecasts—one in which the uncertainty is considered, measured and understood.
“We keep evolving. We will keep delivering against our clients’ demands in what is a fast-moving industry and risk landscape. In this way, our aim is to provide input that allows them to navigate volatility, build resilience, and make better business decisions,” he concludes.
Adam Podlaha is head of Impact Forecasting at Aon. He can be contacted at: adam.podlaha@aon.com
Main image: Shutterstock / Bilanol