Harnessing the power of data for real-time risk management

Global insured losses from natural disasters hit $88 billion by the end of the third quarter of 2023, according to Aon’s Q3 Global Catastrophe Recap report. The total is 17% higher than the 21st century annual average, with at least four separate billion dollar insured loss events for severe convective storms in the U.S. in the third quarter alone — a figure that Aon warned would likely be revised upward to seven events due to continued loss development. 

Indeed, in the year when insured losses from severe consecutive storms in the U.S. exceeded $50 billion for the first time, exposure management has never been more critical for the re/insurance sector. 

The winds of change are blowing fiercely through the corridors of the industry. Lloyd’s, for instance, recently issued a clear directive: underwriting and exposure challenges must be identified earlier in the syndicate business planning process. The pressure is on for insurers and reinsurers to adapt and find innovative solutions to manage risk more effectively.

In this era of interconnected and fast-evolving risks, traditional risk management practices are finding it increasingly challenging to keep pace — from geopolitical tensions to environmental catastrophes and cyber threats. Traditional risk management approaches, while valuable, are often insufficient in dealing with these challenges and there is an increasing need now to identify these risks earlier and with more precision.

In some corners of the global re/insurance market, exposure management data is still handled manually or through legacy systems. In a world characterized by macroeconomic fluctuations and a volatile business environment, the need for accurate, up-to-date data handling is paramount.

Outdated systems are ill-equipped to deliver the accuracy required for exposure management. Errors that creep into the process can quickly multiply, leading to significant financial and regulatory consequences. The demand for powerful, effective exposure management technology has surged in response to the growing volume and quality of exposure data.

Urgent exposure challenges
Lloyd’s emphasis on contextualizing underwriting and exposure challenges aligns with the urgency of our times. To tackle these challenges, we must harness the power of data and technology. Data-driven decision-making and advanced technologies like artificial intelligence and machine learning have become pivotal in exposure risk management. These tools empower organizations to proactively manage risks, optimize insurance strategies and build resilience against uncertainties. Leading exposure management platforms are at the forefront of integrating these technologies and data streams to provide users with actionable insights.

Today’s risks are interconnected, transcending borders and boundaries. International cooperation is no longer optional but imperative. Leading exposure management platforms facilitate collaboration among stakeholders, including insurers, risk managers and policymakers. This collaboration enhances collective resilience and our ability to respond effectively to emerging risks and understand the impact of events as they are unfolding. 

While data and technology are crucial, the human factor remains irreplaceable. Skilled professionals are essential in interpreting data analytics and implementing risk mitigation measures. The synergy between data-driven insights and human judgement is a force multiplier.

The reliability and accuracy of information used in the risk assessment process will continue to be a top priority for global re/insurers in 2024. Integrating third-party data sources, such as satellite imagery, climate data, and social media data, is essential for a comprehensive understanding of risks. 

At the same time, data validation, normalization, encryption, access controls and monitoring are best practices for securely feeding third-party data into platforms. Exposure management platform providers must also stay vigilant, monitoring third-party data sources for changes or updates to ensure accuracy and compliance.

The tools the industry uses must also be accessible — there should be very low technical barriers to entry in order for an organization to harness market-leading exposure management technology. Throughout the event lifecycle, user experience is a critical factor. Accessibility and user-friendliness are vital for effective risk management. Intuitive platforms encourage users of all expertise levels to make the most of their data.

A glimpse of the future
Looking ahead, 2024 promises exciting developments in exposure risk management. Emerging trends and innovations will shape the industry’s trajectory. The rise of real-time exposure management is particularly notable. The volume and complexity of exposure data have escalated, and insurers are actively seeking tools that support improved risk assessment, enhanced underwriting and better compliance. The entire industry is moving towards real-time exposure management, making Lloyd’s aspirations achievable.

The feedback loop after an event is equally important. Exposure management data helps insurers update risk assessments after catastrophic events. Combining claims data with exposure data enables more accurate loss estimation and informed decisions about claims settlement.

The ability to update models for potential losses associated with catastrophic events using exposure data is a significant leap forward. It allows insurers to simulate different scenarios and adjust underwriting strategies.

In conclusion, the insurance industry is on the verge of a significant transformation in exposure management. Data-driven decision-making, real-time exposure management, and advanced technologies are leading the way. The future is exciting, and the potential for better risk management and resilience is within reach — it’s a future where data, technology and human expertise converge to shape a resilient industry.