How data analytics can help reinsurers address the exposures of a new risk landscape.
Contrary to what some might have us believe, we are not living through a unique period.
The reinsurance industry has always faced uncertainties and change, and there are always differing influences on the market. In that sense, our period of uncertainty is no different from the past.
Having said that, influences on demographics and lifestyles are undoubtedly changing, and the industry’s exposures are changing as a result.
The insurance community has to address evolving risks, such as cyber or terrorism, for their clients and consumers. They need to be proactive in offering products to cover new exposures.
Take the urbanisation of China, for example. The build-up of people and infrastructure on the coast of China is vastly different from 20-30 years ago, and brings with it new exposures. The typhoons are no different. But where they may have hit largely rural areas before, they could now threaten a city of some 10 million people.
There will always be new risks and new exposures; it comes down to how the industry builds products and coverage for whatever they are.
The question is, how do we collectively do this in an efficient manner, without throwing capital down the drain?
Insurers will need the technical abilities to price coverage, consider the risk/reward ratio, and manage capital aggregates accordingly. And coverage has to be priced appropriately for the risk, otherwise clients will simply self-insure.
Data analytics is helping to bring a level of science to these new exposures. It doesn’t necessarily reduce uncertainty, but it can help to justify positions clients might have.
Analytics can help clients identify the parts of their portfolio they want to offload from a risk perspective, because they have a better appreciation of their exposures and accumulations. And it can bring clarity to portfolio analysis and capital management.
There are limitations to the use of data, which need to be factored in when making decisions based on the results of analytics. This is a challenge as they are evolving all the time.
However, regulators and ratings agencies need some sort of proxy for setting minimum capital adequacy standards. As such, analytics are becoming increasingly attractive to the industry.
Please contact Stuart Beatty, CEO of Asia Pacific at JLT Re on +61 (0)292 908 106 or email firstname.lastname@example.org