I recently discovered a fascinating project being led from Bermuda called the Risk Prediction Initiative (RPI)

RPI is a ground breaking initiative between the Bermuda insurance industry and the Bermuda Biological Station. It is an awesome project that could change the way property catastrophe risks are rated globally as it is the first to marry the art of science with that of insurance.

Although the initiative is based in Bermuda, it will benefit the global insurance industry and society as a whole. After the devastating effects of Hurricane Andrew in 1993, $4 billion in new capacity to the insurance industry, specifically on the property catastrophe side came to Bermuda.

This $4 billion capacity created a true property and catastrophe reinsurance market for the first time in Bermuda bringing with it a whole new level of expertise. The beneficial result of this new expertise to the island is the marriage of science and insurance.

The concept of RPI began when former head of Mid Ocean Re, Michael Butt threw out a challenge to the Bermuda Biological Station instead of turning down when they came soliciting funding from his company.

Butt challenged the Bermuda Biological Station representatives to develop a project which could benefit the insurance industry and science. If they fulfilled his challenge, he promised his company would willingly commit to the project on a long term basis as long as four other companies signed on.

Director of RPI, Tony Knapp says he and his colleague Tony Michael went back to the drawing board to come up with a solution to this challenge thrown out by Butt. What ultimately came out of this challenge was the beginning of the collaboration between scientists and insurance executives.

RPI is unique as it is the first time such an initiative has been carried out on a formalised basis. According to Susan Howard, Science Liaison Operations Manager for RPI, after Andrew it became apparent to the insurance industry that there was very little science involved in the risk models they had been using. They discovered as a consequence of the mass destruction Andrew left behind, their rating models were inaccurate as there was no real connection between meteorologists, climatologists and the numbers which came out of their risk models.

Not wanting to be caught out again, the industry willingly embraced the biological station's initiative as they felt it was the best path to predicting where the next big loss was going to occur and whether they were charging adequate rates for a particular geographic location.

The brains behind RPI made the conscious decision not to spend any research money on the study of Earthquakes because there is adequate research being done on this exposure already.

Instead the focus of RPI is on tropical cyclones specifically at the request of many insurance companies to determine patterns and where they are likely to hit. RPI also focuses on hurricane predictions, European weather patterns, windstorm and other areas that are identified as not having huge government funding.

The first companies to sign on to this initiative were Cat Ltd., Mid Ocean Re, ACE, XL, Renaissance Re, Chubb, American International Group, Statefarm and Swiss Re amongst others. Therefore, Butt had more than the four companies he needed to establish the initiative as a credible one and as a result RPI was born.

According to Knapp, this is a ground breaking initiative for scientists and the Biological Station because it allows them to connect climate risks with the business world. RPI has been hailed in the science world as a major success story and has been featured in Nature, the premier science magazine.

The beauty of RPI is that the Bermuda Biological Station, in its 99th year is the oldest marine lab in the world, and is therefore recognised globally as a premier marine lab. It also has the clout to cherry pick the best scientists from around the world, according to Knapp because of its prestigious reputation. Therefore, Knapp says they are able to attract the best scientists from around the world because these scientists recognise the Biological Station's desire to expand science into society and they want to be a part of it, not on their own but behind the scenes where they like to be.

RPI through Susan Howard is facilitating the role of intermediary between science and business. Howard takes funding from insurance companies and distributes it to worthy research projects. She also acts as the translator of scientific terms for the lay person to understand what discoveries have been made or are in progress.

RPI is also privy to first hand discoveries before they have been published to the general public. Members of RPI have access to these findings and therefore have a leading edge over non-members because it allows them to know ahead of time where science is going. This inside information also allows companies with specific needs to select scientists they feel they can work with to carry out research exclusively for them. This benefit is especially helpful to companies who do not necessarily want the world to know what their concerns are but are looking for specific data.

RPI has suffered financially recently because of mergers in the insurance industry and the industry's poor performance as a result of September 11, 2001. I don't believe the industry should stop funding RPI because in the long run, it could result in a beneficial partnership between those who understand the science of nature (scientists) and those who try to make society whole in the event of its devastation (insurance companies).

Should this initiative fail, the industry would once again rely on incomplete and inaccurate data collected from an environment where the natural cycles are so huge that scientists are still uncovering fascinating correlations between El Nino, La Nina and Atlantic ocean currents to name a few and their impact on society. Without continued funding, nature's unpredictability would remain just that. RPI is an invaluable initiative not just to the insurance industry but to all of us because it will help scientists to unravel the chaos of nature. If you are interested in knowing more about RPI, check out their very informative website www.bbsr.edu/rpi/.

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Cathy Duffy is a Chartered Property Casualty Underwriter (CPCU) and is now a freelance writer. She is a former executive of Zurich Global Energy and has 15 years experience in the insurance industry. She writes on insurance issues in The Royal Gazette every Monday. Feedback crduffycwbda.bm