Clarion Call to Overhaul Casualty Risk Reporting

Insurance industry leaders are poised to instigate a far-reaching initiative to overhaul risk accumulation and exposure reporting in the fast-expanding casualty sector.

Munich Re, the world’s foremost reinsurance company, and Russell Group, a U.K.- based pioneering data analytics firm, are urging the creation of a new framework among insurers and reinsurers in the specialty casualty class.

The ambition of the casualty initiative is to agree an industry standard for identifying and naming casualty risks, while streamlining and automating the reporting process.

Casualty encompasses a variety of product lines, often written by various underwriting units in different parts of the world, then reinsured and passed onto global retrocession markets. Retrocession is a common industry practice where one reinsurer insures another by accepting business the latter, the cedant, had agreed to underwrite.

Russell Group Managing Director, Suki Basi, explains the drive is critical in the context of the current surge in demand to write casualty cover. He says: ‘We now have similarities in the issues facing direct and reinsurance companies, with the realisation that the solution for both is the same albeit for the reinsurer it is a lot more complex.’

The move comes amid disquiet in the industry about inadequate exposure reporting between cedants and reinsurers. Since multiple, manual accumulation and reporting mechanisms lead to confusion and heightened risk, the casualty class is a serious cause for concern and has the potential to really test a (re)insurer’s balance sheet.

An emerging demand among industry players is for the casualty market to display more transparency over insureds in order to properly enforce good accumulation controls. There is also a growing conviction that an insured ‘naming convention’ is required which (re)insurers could use with confidence, knowing that they are taking on approximately the same insured risk. The belief is that reinsurers would benefit from a standard format to exchange policy exposure data between themselves and cedants.

As Basi explains: ‘The market doesn’t consistently give exposures from cedants to reinsurers in a format that is easily digestible so that you can track smoothly the relationship between the exposure that is given by the reinsured versus the one that you are tracking from your other writings.’

In a competitive market like casualty, adds Basi, the key to out-performing competitors is being selective, tracking aggregates better and using fragmented information in a more controlled, consistent way.

Adriano Bastiani, Head of Casualty Facultative at Munich Re, claims the industry is experiencing a ‘flight to casualty’, which make the call for new risk naming and reporting standards globally more urgent. He says: ‘Liability has no frontier. It is volatile, it can be everywhere. You need to make sure that for the insured who is liable, you know how much of this liability you have picked up on your insurance policy and with the reinsurance policy you have written.’

He adds it is imperative for (re)insurers to be more selective and steer their capacity to focus on superior underwriting practices, and consolidate often hetergenous information received by cedants across the world in order to identify the right risks to underwrite. ‘It’s a tough job to aggregate all the information and bring it into the same format’, says Bastiani.

He likens the process to the gyrations in the capital markets. ‘You have to outperform the market. There is nothing different here to what happens in the stock market, where as a minimum you need to be better than the average, so superior underwriting quality is required. In order to do that you need to know what you have in your books, how to manage your aggregates and where you have free capacity.’

Once information across different underwriting units and product lines - on a facultative and reinsurance treaty basis - is harmonised, the ultimate goal of the initiative is for underlying risk data to be integrated to analyse systemic risk.

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Russell Group is a leading risk management software and services company fast expanding its operations across Asia. Through its ALPS suite of products, Russell Group provides a truly integrated framework for insurance and reinsurance clients operating across the specialty classes.

With an underwriting risk framework that delivers a complete understanding of underwriting exposure, Russell Group helps clients generate clearer risk insights and assessments, robust capital utilisation and improved portfolio return on equity.

As a pioneering UK-based data analytics company, Russell Group offers insurers and reinsurers across Asia proprietary technology that factors in the realistic, probabilistic and unexpected for better scenario modelling to give more accurate pricing in underwriting risk management.

If you would like to learn more about Russell Group’s ALPS solutions, please contact rbrown@russell.co.uk