Lloyd’s intends to identify underwriting and exposure challenges earlier in the syndicate business planning process. The pressure is on, and Ebix Europe Vice President Peter Smyth explores the latest advancements harnessing the power of data in exposure management and highlights how they can help syndicates to get ahead.
On 16th May Lloyd’s issued a market bulletin detailing its 2024 business plan and capital approval timeline for syndicates. A critical detail within this bulletin is the fact that Lloyd’s now intends to identify underwriting and exposure challenges earlier in the syndicate business planning process.
The bulletin makes clear that performance remains Lloyd’s number one priority, and it is critical that syndicates evidence that they have considered and factored in the risks related to macro thematic challenges in their plans.
Lloyd’s is seeking the confidence to contextualise any immediate underwriting and exposure challenges, and define areas of focus and levels of materiality for challenge, earlier and with more specificity than before. And with the Syndicate Business Discussions starting in June, the pressure is on.
However, “Where there is data smoke, there is business fire” – So said data guru Thomas Redman, and it’s a statement that rings very true in the corners of the global re/insurance market where exposure management data is still handled manually and through a myriad of legacy systems.
INFLATION, PRICING & CLAIMS
If you then factor in macro-economic developments around inflation, interest rates, and the impact of a volatile business environment, it is abundantly clear that the volume and complexity of data involved in the risk assessment process, and the nature of the risks faced, are constantly evolving.
But many of the systems that re/insurers have in place to monitor and manage this exposure are out of date and unable to deliver the level of accuracy required.
This presents the perfect conditions for errors to creep in. And a miscalculation in one place can quickly multiply and lead to very significant black holes – with serious financial and regulatory consequences when it comes to knowing how much you have to pay in any given claims scenario in the wake of a catastrophic event.
At the same time, the rapid escalation in the volume and quality of exposure data available on a global scale has led to high demand for powerful, effective exposure management technology. Re/insurers are actively seeking out tools that support their path towards improved risk assessment, enhanced underwriting, increased efficiency, better compliance, and improved / more accessible user experience.
PRE-EVENT EXPOSURE MANAGEMENT
As Lloyd’s gears up to start the Syndicate Business Discussions early with a focus on core exposure management, it is important to understand what ‘good’ looks like. To ensure the reliability and accuracy of the information used in the risk assessment process, it is crucial to integrate third-party data sources such as satellite imagery, climate data, and social media data, to provide a more complete understanding of risks, for instance. The process of securely feeding third party data into a platform involves applying best practices around data encryption, access controls, data validation, data normalisation, data monitoring, and vendor management.
Validating third-party data sources and checking for inconsistencies or errors in the data is critical to ensure accuracy and completeness. At the same time, normalising or standardising third-party data sources ensures that they are compatible with the platform’s data model, and the best providers will convert high quality data from a myriad of relevant sources into a standard format and align it with the platform’s data schema.
It is also critical for exposure management platform providers to monitor third-party data sources for changes or updates to ensure that the data remains accurate, secure, compliant and up-to-date. For the most part this involves setting up alerts and notifications to inform platform users of any changes to the data.
We are working towards a platform which takes in data about events as they are happening – for instance, during a natural disaster like a hurricane, satellite imagery and other data sources can be analysed for instance to provide a more accurate understanding of the extent of the damage.
In its current form, ExposureHub can already help reinsurers to more accurately estimate their exposure and manage their risk accordingly swiftly post event. Similarly, after a data breach or denial of service attack, ExposureHub can help to identify the extent of the exposure in real-time and provide insights on how to mitigate future risks.
POST EVEN EXPOSURE MANAGEMENT
The post-event feedback loop also matters now more than ever. Exposure management data can be used to effectively update the risk after catastrophic events by providing insurers with a more accurate understanding of the potential losses associated with those events.
This can involve assessing exposure, evaluating losses, modeling potential losses, updating risk models, and sharing information with reinsurers and other stakeholders to help the market as a whole respond better to future events.
By combining claims data with exposure data, insurers can estimate their losses more accurately and make more informed decisions about claims settlement. At the same time, by analysing their portfolio data, insurers can identify the policies and regions that are most at risk and prioritise their response efforts accordingly.
Exposure management data can also be used to update models for potential losses associated with catastrophic events to reflect the new information learned. By using catastrophe models that take into account exposure data, insurers can simulate different scenarios and evaluate the potential impact of catastrophic events on their portfolio, gain a better understanding of their risks and adjust their underwriting strategies accordingly.
Throughout the event lifecycle, user experience is also crucial – particularly in an industry where expertise moves around, and knowledge gaps are sometimes left in their wake. The accessibility and user experience of a platform is in fact a critical factor when improving risk management and understanding. Intuitive platforms encourage users of all levels of expertise to fully benefit – both experienced exposure managers and less frequent users must be able to get the most out of their data.
Overall, the re/insurance sector is close to achieving real-time exposure management, thanks to advancements in aggregating and analysing data from multiple sources leading to huge steps forward in risk assessment, enhanced underwriting, increased efficiency, better compliance, and improved user experiences.
Those that deploy advanced exposure management software like ExposureHub can meet or exceed the updated expectations from Lloyd’s around exposure management data to support their Syndicate Business Discussions. They can also avoid a “no smoke without fire” scenario of inaccuracies in their exposure data sets, and instead provide re/insurers with a more comprehensive, accurate, timely and profitable understanding of their risks – to the benefit of the market as a whole.
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