Commenting on the recent Standard and Poors (S&P) conference in London, Graham Pickard of Agencyport explained that the reason for the on-going lack of accurate and credible estimates for insured losses from Hurricane Sandy is well known in the insurance industry.
“Catastrophe models estimate losses from expected catastrophes. When the location or perils involved in an actual loss are not included in vendor models it is no surprise that they cannot estimate total insured losses. It is essential that insurers maintain their own aggregate exposures. They can’t expect vendor Catastrophe models to do things they aren’t designed to do.
The reason that insurers find it hard to maintain accurate aggregates is usually the poor quality of address information available and the complex nature of the policy conditions and limits. But neither of these is insurmountable. A financial incentive – perhaps in pricing or commission – could persuade brokers and agents to provide better and more consistent data. The adoption of existing market data standards, such as those maintained by ACORD, would provide a framework to ease the acquisition and transmission of better quality data.
The best insurers use dedicated exposure aggregation software to validate and refine address data (geocode) and map the complexity of their policy structures so that all perils and lines of business can be successfully managed and aggregated together. This enables them to write business within their own retention limit more accurately, allowing more effective use of underwriting capital, and optimisation of profitability.
With the widespread adoption of Standards through software such as our Open Xposure product we are now able to encourage and enable cooperation throughout the insurance supply chain from agents, brokers, insurers and reinsurers.
If the industry grasps this nettle insurers will have greater confidence in the analyses of the next catastrophe.”
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