The number of catastrophe bonds outstanding could double between now and 2018, according to a new report from BNY Mellon.
The study looked at ways in which insurers and the capital markets can harness big data to close the gap between between insured and economic costs following a natural catastrophe.
Dean Fletcher, head of EMEA corporate trust at BNY Mellon, said: "The initial investor base was dominated by hedge funds and private equity, but we are seeing more long-term investors such as pension funds buying cat bonds. Investors are attracted by the high yields in the current low interest rate environment."
Natural catastrophes cost the insurance industry approximately $13 billion globally in the first half of 2013, and the overall economic losses were estimated at around $45 billion. The industry covered less than a third of natural catastrophes.
Paul Traynor, BNY Mellon's international head of insurance, said: "Insurers and the capital markets can help reduce the disaster gap by working together with big data to deploy new capital to cover new perils in new regions. This will reduce the cost of rebuilding for governments and provide a positive contribution to society."
The report suggests that a combination of legacy and predictive big data models will produce more robust risk modelling for cat bonds. These models should include unstructured data, fast changing data and data generated from an increasing number of sensors, mobile devices and social media applications.
