Aon Benfield launches new motor tool

Reinsurance broker Aon Benfield has launched a new tool to help insurers quantify their exposure to Periodic Payment Orders (PPOs) which settle motor injury claims in the UK.

Motor insurers need to submit projections for PPO claims costs under Solvency II but regulators are demanding more detailed and accurate figures, according to Aon Benfield.

It said a better understanding of claims costs could result in more appropriate capital charges for insurance companies, in addition to making more informed strategic decisions on reinsurance and writing new business.

Traditionally, actuaries have used non-life models or spreadsheets to assess the risk, which lack in granularity and can be a time-consuming task. To address these challenges, Aon Benfield has built a stochastic solution to calculate insurers’ exposure to PPO claims, in addition to how a range of reinsurance options can change that exposure.

Using components from ReMetrica for Life, Health & Pensions – Aon Benfield’s risk and capital modelling platform – actuaries can assess the potential costs for both new claims and existing claims where the majority of the liability lies. The model allows the user to capture uncertainty around all the key risk drivers, such as PPO propensity, settlement rates, mortality rates and all indexes such as Annual Survey of Hours and Earnings Statistical bulletins [ASHE].

Actuaries and risk analysts can import existing input spreadsheets directly into the model and design bespoke reports. Because the model is pre-tested and transparent, it is also possible to see ‘behind the scenes’ to understand how the numbers were reached, according to Aon Benfield.

The ReMetrica software can also be used by composite insurers to aggregate exposures and can equally apply to other lines of business such as workers’ compensation.

Paul Maitland, head of risk software at Aon Benfield, said: “We received a number of enquiries from insurers after the regulator had asked them to go deeper into their understanding of annuity type claims as part of the internal model process.

“We used life techniques to solve a non-life problem and developed a solution where an insurer could both meet Solvency II demands while having the data to make strategic business decisions.”

Richard Evans, head of UK motor at Aon Benfield, added: “The tool from ReMetrica is an exciting development that will easily allow insurers to assess PPOs in their capital models.

“These techniques allow us to provide our clients with clear and unambiguous advice on their exposures to PPOs under different reinsurance solutions, such as helping insurers navigate capitalisation clauses.”