What are the potential revenue implications for Moody’s from licensing the model to additional insurers beyond California?
Potential revenue implications for Moody & Co. from licensing the RMS U.S. Wildfire Model v2.0 to insurers outside California
| Revenue Stream | How the California approval creates upside | Why the upside could be material |
|---|---|---|
| 1. Direct licensing fees from new insurers | • The model’s clearance by the California Department of Insurance (CDI) gives it a regulatory “seal of approval” that can be marketed as a proven, forward‑looking catastrophe‑risk tool. • Insurers in other states (e.g., Washington, Oregon, Arizona, Colorado, New York) that face similar wildfire exposure will now have a ready‑made, CDI‑validated model to support their own residential‑rate filings and re‑insurance negotiations. |
• Scale effect: If Moody’s can sign up even a modest share of the ~1,200 property‑line carriers that write in high‑wildfire‑risk states, each contract could be worth $50 k–$150 k per year (typical catastrophe‑model licensing rates). • Revenue projection: 5 % market penetration (≈ 60 new carriers) × $100 k average annual fee = ≈ $6 M / yr of incremental recurring revenue. |
| 2. Tiered, usage‑based pricing (per‑model‑run or per‑exposure unit) | • The CDI approval allows Moody’s to move from a flat‑fee license to a usage‑based pricing structure (e.g., per‑model‑run, per‑policy‑exposure, or per‑catastrophe‑scenario). • As insurers adopt the model for more lines (commercial, multifamily, and even agricultural exposure) the number of model runs will rise, generating additional per‑use charges. |
• Variable revenue: If each new insurer runs the model 12 times a year (monthly or quarterly updates) at $2 k per run, that’s $24 k per insurer. For 60 insurers → ≈ $1.4 M / yr in usage‑based fees. |
| 3. Cross‑selling of Moody’s broader analytics suite | • Once an insurer adopts the wildfire model, Moody’s can bundle related risk‑analytics products (e.g., climate‑trend modules, re‑insurance pricing tools, loss‑cost analytics). • The “one‑stop‑shop” approach can increase the average contract value (ACV) by 20‑30 %. |
• If the base wildfire‑model license is $100 k, a 25 % upsell adds $25 k per insurer. 60 insurers → ≈ $1.5 M / yr extra. |
| 4. Expansion into adjacent markets (Canada, Australia, Mediterranean Europe) | • The model architecture (wildfire‑hazard, exposure, and climate‑trend data) is transferable to other high‑fire‑risk regions. Moody’s can repurpose the U.S. version for international licensing with modest localization (e.g., vegetation, building‑code differences). | • International licensing rates are often higher (US $150 k / yr) because of the added data‑integration work. Securing 5‑10 foreign carriers could add $0.75 M–$1.5 M / yr. |
| 5. Recurring “maintenance” and “data‑feed” subscriptions | • The model requires continuous updates (fuel‑load, climate‑scenario, building‑stock changes). Moody’s can charge an annual data‑feed subscription (e.g., $10 k–$30 k per insurer). | • 60 insurers × $20 k = $1.2 M / yr of steady, non‑licensing revenue. |
| 6. Reputation‑driven premium pricing | • CDI clearance signals regulatory compliance and model robustness—a differentiator in a market where many carriers still use legacy, less‑transparent models. Moody’s can command a premium price (10‑15 % higher) versus competitors. | • If the average license price rises from $100 k to $112 k, that’s an extra $720 k / yr on 60 contracts. |
Aggregate revenue impact (illustrative)
| Component | Estimated incremental annual revenue |
|---|---|
| New insurer licenses (flat fee) | $6 M |
| Usage‑based fees | $1.4 M |
| Cross‑sell of analytics suite | $1.5 M |
| International expansion | $1.0 M |
| Data‑feed / maintenance subscriptions | $1.2 M |
| Premium pricing for regulatory‑approved model | $0.7 M |
| Total potential incremental revenue | ≈ $11.8 M / yr |
Key take‑aways
1. Regulatory validation is a catalyst – the CDI review gives Moody’s a concrete, market‑facing proof point that can be leveraged in sales pitches across the U.S. and abroad.
2. Recurring, scalable streams dominate – licensing, usage‑based fees, and data‑feed subscriptions together create a high‑margin, multi‑year revenue base rather than a one‑off sale.
3. Cross‑selling amplifies contract value – insurers that adopt the wildfire model are natural candidates for Moody’s broader risk‑analytics portfolio, further deepening the relationship.
4. International and adjacent‑risk markets present upside – the model’s core engine can be adapted for other fire‑prone regions, opening a new geography of licensing revenue.
In sum, once the RMS U.S. Wildfire Model v2.0 is CDI‑approved, Moody’s can translate that regulatory win into a multi‑digit, recurring‑revenue engine by expanding the licensing base beyond California, charging per‑use, bundling complementary analytics, and extending the model to other high‑wildfire markets worldwide. The magnitude of the upside will depend on market‑penetration speed, pricing strategy, and the ability to cross‑sell Moody’s broader suite of risk‑modeling solutions.