Data & analytics: the glue between supply and demand

Aon Benfield’s latest Insurance Risk Study provides insight into emerging risks and growth opportunities, as Stephen Mildenhall, global CEO of Analytics for Aon, explains.

What are the key themes of this year’s Insurance Risk Study (IRS) report?

The market can be divided into three areas, which is how we have positioned the report. The first area is demand, where we have looked at the top concerns for risk managers such as reputation and cyber risk. Overall we have seen opportunities shift away from traditional risk lines of business such as general liability and motor, and more movement towards emerging risks.

On the supply side, we are looking at the record amount of capital in the re/insurance industry; there is more capital available to take risk, so this needs to be matched to the demand.

The third area is the glue of data and analytics that sits between supply and demand and makes the market. If you cannot understand the risk, you are not going to be able to measure or manage it, and therefore operate a successful risk management programme.

If traditional risks are decreasing, what are the emerging trends that insurers need to prepare for?

One new risk class for the insurance industry that we see as driving a lot of demand is mortgage credit insurance in the US. This has the potential to drive more than an annual $6 billion of new limit over the next few years.

Other emerging risks can be grouped into three key categories: cyber and terrorism covering the darker side of the geopolitical environment; the sharing economy and reputation or brand comprising risks emerging from the online economy, social media and the connected world; and finally micro insurance and large corporate liability: losses at the opposite end of the size spectrum, but both offering substantial opportunities.

Coverage gaps in the sharing economy—for firms such as Uber and Airbnb—highlight an immediate opportunity where businesses can fall between personal and commercial policies.

What are some of the key trends around current insurer performance that are identified in the report?

Global property casualty premium is about $1.4 trillion, up nearly 5 percent year on year, and capital is at $1.3 trillion, so also up about 5 percent. In terms of results from last year, we estimate that the industry achieved a 97 percent combined ratio, so two points better than the previous year, as a result of catastrophe losses being below average.

Also, if you look across the top 50 countries, 27 of these had a combined ratio of 95 percent or better, which is up 21 from last year. There are pockets of opportunity across the globe and the savvy companies are able to find those opportunities and capitalise on them.

How has the IRS report evolved since the first edition 10 years ago?

The most significant change has been the shift in focus from risk management to return and growth. When we began the report, there was a strong focus on enterprise risk management and we published parameters that were core to the types of models that firms needed to build.

But as time went on, there was greater interest in growth and how to be profitable. This is when we started to introduce new analysis such as the country opportunity index which assesses which countries are outperforming from a growth and profitability perspective. This year’s index is led by three countries in south east Asia: Indonesia, Malaysia and Singapore.

There has also been a change in the approach of the insurance industry which today is much more quantitatively driven. In the past an emerging risk may have been addressed with more of a plan as-you-go approach. Now, insurers are comparing it to other lines that they write, to understand expected losses while equally highlighting the shortcomings of the information available on emerging risk lines.

How can an insurer incorporate the report’s data into its growth and risk managemen strategy?

On the risk management side, we have focused on how companies can use the risk parameters for 49 countries, covering more than 90 percent of global premium, to build their internal economic capital models. We have an active dialogue with clients on how to make the most of this analysis.

The report will not give all the answers but our team is available to speak to clients about any questions that they might have—particularly around growth, geographic expansion and market feasibility.

Stephen Mildenhall is global CEO of Analytics for Aon. He can be contacted at: stephen.mildenhall@aonbenfield.com.