Munich Re shares data secrets

Risk managers wondering how underwriters use their data to rate and review risks—and then set their rates—were given a behind-the-scenes look at how Munich Re does it, although Airmic 2019 workshop leader James Cleaver, a corporate insurance partner at the German firm, was careful not to give away all the reinsurer’s secrets.

“We are underwriting risks with the support of technology and we have a team of underwriters adding their own input and expertise,” Cleaver said.

However, when it comes to sources of data, he told the audience that “client proposal forms”, which have traditionally been a key source of data, were “starting to fall by the wayside as a data source”.

Part of the reason for this is that the forms previously had questions on processes and contracts but over the years that’s been taken away. Cleaver commented: “That is something we might see return.”

He shared the key underwriting factors they consider when looking at directors & officers liability coverage with delegates at the session.

On the quantitative data side, Munich Re looks at core business sector and activities, where the organisation is listed publicly, its financial security stability and complexity and territories of operation. It also considers a company’s financial performance and the breadth of its policy wording.

So far, so broadly predicable, but risk manager attendees may have been more surprised by the things the reinsurer looks at on the qualitative data side. Analysis gets very in-depth, with research into the levels of disclosure and market guidance provided by the corporate, and identification of what is driving change at the business.

Even the application and delivery of strategy come in for close scrutiny, as do governance, management structure, share structure and complexity. For example, it looks at whether so-called tech unicorns could have conflicts with shareholders demanding a different strategy, so they can understand where the exposure might come from.

Included in the decision mix is also how the company navigates the economic and regulatory environment, and its sustainability and activism. Underwriters also consider “event”-related exposure and claims and litigation that has affected the company before making a call.

For example, Cleaver said, the reinsurer is seeing an “uptick in the levels of litigation, for example in the US in pharmaceuticals”.

Cleaver said the quantitative data represented the expected loss levels, while the underwriters developed the technical rating from the qualitative information.