Old habits die hard
Better use should be made of the abundance of data available to underwriters and insurers to spark innovation and ensure that appropriate solutions are being created to serve certain markets, especially in the larger commercial markets.
That is the view of Mike Pilla, CEO and president of Technical Risk Underwriters (TRU), a subsidiary of Ryan Specialty that focuses on underwriting complex construction and property risks. He says that US flood insurance is a good example of where forward-thinking investment is required by the industry to solve a problem currently dealt with by the government.
“The federal government in the US provides a lot of flood insurance,” he says. “Whether that’s a long-term situation for larger commercial customers remains to be seen, but the industry has to do a better job of looking at areas like this. We must lead the charge into the future where our industry can provide product to larger commercial customers.”
He explains that there is more data available to insurers and underwriters than ever before, but it is not being used to its full potential.
“It’s a case of people taking the time and making the investment to develop the capacity and the tools that customers and carriers need to make a profit,” he says.
And while he extols the virtues of using technology and state-of-the-art risk modelling software, Pilla insists that when it comes to innovation and problem-solving, experience remains at the forefront of good business.
“Experience is by far the most critical factor,” he says. “The industry existed for decades before computers and models. While it’s important to remain cutting-edge and take advantage of tools, experience still has a very key role to play. We have a chief analytics officer on our team who has more than 30 years’ experience in predictive sciences and maths.”
TRU has invested heavily in developing proprietary models and analytics in recent years—tools which are, Pilla says, invaluable. But judgement remains the defining factor in decision-making.
“I work with CEOs and chief underwriting officers around the globe and the general consensus is that cat modelling software companies provide a tool that is necessary in today’s world, but very few believe that models are reliable enough to be a true indicator of performance in the event of a natural catastrophe,” he says.
He notes that previous miscalculations by such models have left some companies with big losses and this has played a part in altering the industry’s perspective of risk models and other data.
“The reality is that bigger organisations now look at the agencies to provide important data points. But many now see data as a guide rather than the bible, and we’re no different.
“We have to use the software, and we do. But we must ensure that we also rely heavily on our own experience. We’ve got guys here who have underwritten cat business—and got it correct—before models even existed.”
As the influx of alternative capital into the industry shows no signs of slowing, Pilla believes buyers will have to make increasingly informed decisions about what type of business they wish to work with and not make decisions based on price alone.
“Pressure will continue to be placed on underwriters to price products effectively and still be relevant,” he says. “We are looking to form partnerships with some of this new capital but I believe that the larger reinsurers and better underwriters must have the courage to try to price their business appropriately.
“When we’re selling to a customer, we want them to be aware of what we’re doing for them to prevent losses, so while there may be a cheaper alternative out there—and some people will flock to that—others will still value the old methods of providing something that’s tangible and visible to the client but might cost a bit more.”
