Insurers and reinsurers will be able to model liability exposures across entire portfolios thanks to the development of an innovative methodology that offers a new way of analysing casualty events, ultimately improving the robustness of the marketplace.
The innovative data-driven methodology has been developed by risk modeller Arium in collaboration with the specialist Lloyd’s of London insurance and reinsurance marketplace, and enables re/insurers with the ability to model liability exposures probabilistically across entire portfolios, a first for the industry.
“This is a tremendously exciting development. It is in everybody’s interest to classify liability risks as accurately as possible, and this methodology represents a real step forward for the industry. Of course, for it to work effectively it is dependent on high-quality industry classification data, and I would encourage all brokers and other stakeholders to help with the collection of such data,” said Jon Hancock, Lloyd’s Performance Management Director.
Lloyd’s and Arium have reportedly been working on the project for the last three years, and the methodology aims to improve insurers and reinsurers understanding of liability risks, and also promote the development of a more robust insurance industry, ultimately improving the sector’s ability to pay claims.
“I am delighted that Lloyd’s has helped to incubate Arium from concept stage to a platform supporting portfolio management as well as deterministic and stochastic modelling of liability exposures. It is very positive that AIR Worldwide has purchased Arium to further commercialise this tool,” added Trevor Maynard, Lloyd’s Head of Innovation.
According to an announcement from Lloyd’s the new methodology creates liability “storm tracks” that offer a new, structured way of assessing and analysing casualty events across the globe, regardless of risk classification. The result of this, says Lloyd’s, is that re/insurers will now be able to model liability exposures in a far more detailed manner, being far more similar to their ability to model catastrophe exposures.
Under the new, innovative methodology casualty events are categorised based on a company’s business activities, its products and services, and also its operations and infrastructure, with the new approach then mapping the economic relationships that “reflect the journey of products and services through the economy.”
Robin Wilkinson, Chief Executive Officer (CEO) of Arium and Managing Director of AIR Casualty Analytics, commented; “Arium is pleased to have collaborated with Lloyd’s and the insurance market on the development of this liability tool, and now a methodology for a stochastic model. This framework can facilitate the further understanding of liability accumulations, through combining expert knowledge with data-driven analytics.”
Reinsurance brokerage Willis Re, a division of Willis Towers Watson (WTW), has described the announcement from Lloyd’s and Arium, and the accompanying report as a “valuable milestone in the development of solutions to model and quantify casualty downside risk.”
Andrew Newman, President, Global Head of Casualty and CEO of Alternative Strategies at Willis Re, collaborated on the panel through the development of the report and also provide some insight; “The objective of quantifying liability risk is consistent with the goals of our clients and industry stakeholders, as current market practice for evaluating risk can be arcane and result in a sub-optimal outcome. Willis Re and Lloyd’s are strategically aligned in seeking to further improve methods of risk evaluation and we are pleased to be sharing our data and proprietary intellectual property to help achieve our common goal. A better understanding of liability risk will assist Willis Re, our clients, the industry as a whole and ultimately the consumer.”
The actual report itself explores how casualty risk exposure can be better visualised and understood with the use of stochastic tools and historical data in order to gain a more comprehensive view of insurance portfolios’ exposure to catastrophic casualty events, both from the past and emerging.
“We view this stage as another recognition of the importance of measuring casualty catastrophe risk through exposure based models. It is challenging to model casualty risk, given its complexity and evolving dynamics; achieving industry consensus has some way to go. Given these complexities we recommend clients take a multi-faceted, multi-modelled view of risk; we welcome Arium’s new offering in the casualty catastrophe model space alongside our existing open-format eNTAIL casualty catastrophe model,” said Neil Bodoff, Executive Vice President, Willis Re.
