The report looks at the difficulties in predicting accumulated liability risk and “the potential to send shockwaves through the insurance industry,” that claims in the space can have.
Trevor Maynard, head of exposure management at Lloyd’s, said that the advancement of big data and technology could be the best way to understand, not only accumulated liability risk, but emerging risks in general.
“Rapid advancements in big data have opened up a wealth of new opportunities in the understanding of emerging risks,” Maynard said.
“One area in particular in which this is creating new possibilities is around the management of liability risk. The approach explored in this report, developed by Praedicat, Inc., is one example of how new technologies are being used to enhance our understanding in this area.
“While the most effective risk transfer is expected to continue to rely on a combination of underwriting expertise and detailed analysis, emerging technologies are offering new insights that we hope will drive further innovation in the insurance industry.”
Chris Mackinnon, Lloyd’s general representative in Australia, told Insurance Business that the report is of particular interest to Australian businesses as the country was one of the worst affected by asbestos claims.
“Insurers across the world – whether in the UK, US, Australia or elsewhere – are all faced with the challenge of understanding emerging risks, and accumulations of liability risks are a particularly challenging exposure to manage,” Mackinnon said.
“Australia was one of the countries worst impacted by the catastrophic accumulation of asbestos-related claims that arose in the late twentieth century, and new cases of asbestos-related illness are continuing to rise.
“Any industry that has felt the drawn out impacts of this liability catastrophe will be likely to appreciate the potential value of this report, as it sets out a technique that could be the first step towards liability catastrophe modelling becoming a widely used tool within the industry, and in doing so could help insurers foresee and prevent this scale of shock repeating in the future.”
Mackinnon continued that the report, primarily aimed at insurers, has great value for brokers as big data and technology can be used by intermediaries to help their businesses.
“Within the insurance industry, it is not just insurers themselves who are set to benefit from the insights and techniques opened up by the rise of big data: brokers have also begun to pay attention to the potential of these new developments.
“Brokers who win business are those who are able to understand bespoke risks, and the ability to connect a risk with the best possible insurer is a valuable skill.
“Improvements in big data, if applied correctly, have the potential to enhance this matchmaking ability by adding greater depth to brokers’ understanding of risks and of prospective insurers, and in doing so can drive stronger customer relationships and more balanced books.”
Mackinnon noted that both the local and global insurance industry will benefit from an increased use of big data and technology as emerging risks are more difficult to measure and understand using traditional approaches.
“Global emerging risk areas such as cyber, the sharing economy and supply chain risks are far less measurable using traditional measures due to the potential for global aggregation of risk, and it is therefore essential that, as an industry, we try to develop new modelling capabilities to help understand these new emerging risks better.
Mackinnon noted that, currently, the use of big data analysis is cornered by the largest players in the market but he believes that it is only a matter of time before the practice trickles down throughout the industry.
“In the Australian insurance industry, big data analytics is currently the domain of the major insurers and the global brokers and reinsurance brokers. The skill sets and resources required to effectively capture, manage and use big data are not widely available to the general insurance community as yet.
“This specific areas of expertise is one that will undoubtedly continue to grow, both within the industry, and through the growth of the external ‘disrupters’ who already have highly developed data analytics, and who are likely to adapt those skills to emerging risk and insurance.”
To view the full report, click here.
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