Against a backdrop of climate change and legislative and building developments, Jonathan Swift discovers why information sources are becoming more important to property underwriters
The issues faced by underwriters of mid-to-large property risks appear to be growing. From climate change to the perceived breakdown of relations between claims and underwriting, it would appear that insurers are facing an increasingly challenging and uncertain market.
Help could be at hand, however. With better information flow between customers, brokers and insurers, as well as a myriad of tools at their disposal, can property underwriters be increasingly confident in the risks they select? To find out, Post, in conjunction with ESRI (UK), gathered a range of experts from the insurance and broking communities to discuss the changing market.
To begin, the invited guests were asked what steps they take to ensure they are happy with the existing risks they have on their books. Jon Seaton, Norwich Union's underwriting director, responded: "Senior property underwriting managers need to communicate to their operational underwriting teams exactly what they are looking for to make sure there is no ambiguity. The more you get right at the start, the better chance you have of making sure you have the business you want to keep for the long term."
NIG head of complex underwriting and pricing John Inwood added: "It is a cultural thing as well. You can issue as many strategy statements as you like but you need to bed that culture in to your organisation because if you have 21 branches around the country, you need to make sure that they are following the same strategy."
Allianz Cornhill commercial property manager Tony Hutchins agreed that getting the right message through to underwriters is key. "It is about educating underwriters," he said. "You need to embed your culture and strategy into your training, and that is certainly something we have done within Allianz."
From here, the discussion moved on to how those risks are likely to develop and change as commercial clients evolve. Neil Mercier, property insurance manager at Axa, noted that insurers must treat each risk as if it will be with them for a long time, and not something that is constantly reviewed to see if it is worth keeping on their book.
A key element to this, he said, was advice: "You need to look at every insured and give them advice about the benefit of risk management practices, so it is the sort of risk you will want to have in two years."
Mark Platten, head of property underwriting at Zurich Corporate, added: "Risks do not remain static, particularly on the large corporate side where they are constantly evolving as insureds buy and sell companies or go into new markets."
Given the changing nature of risk, the attendees were asked what the standard of information provided by insureds was and whether there were needs for it to improve. Mr Platten interjected: "The flow of information is as good as it has ever been but could it go further? Of course it could.
"We have challenges in some areas to understand risk as an industry, especially because there has been a lot of change. Business interruption is a classic example because companies operate in a different way to how they did 15 to 20 years ago. So, in terms of manufacturing, there has been a lot more rationalisation and outsourcing, and they no longer have the spare capacity they once had - that's an area where we would like more information."
Graham Heale, Royal and Sun Alliance underwriting director of property and engineering, commented: "The issue of underwriting information is fascinating. At the top end, the flow of information is much better but at the other extreme you have commercial direct where the pressures are on process improvements and minimising the number of questions answered."
He added: "You have this dichotomy where underwriters want to understand the nature of risk better but, at the small end, there is pressure for less information. That presents an interesting challenge."
At this point, Colm Kelleher, head of CI London broking at Aon, said: "On the larger side, brokers and insurers should spend more time with their clients to find out more about them because there are often a lot of assumptions made about businesses that are underwritten. Some categorise it in simple boxes, when they need to ask questions such as 'what would you do if this happened?'"
Mr Mercier agreed that talking benefits all sides, which ultimately helps the UK economy: "We have to educate clients when they make insurance choices, as those decisions could impact their business. Self-assessment - especially with small businesses - is important but a lot of them don't have the knowledge and information to go about it. Insurers and brokers have a big part to play to fill in some of the things that were previously dealt with by other people, like the fire brigade. So there is an opportunity for us to improve the whole of the UK PLC in that respect."
The discussion then moved onto the subject of volumes of information, including the amount insurers and brokers currently face as well as how much of it is useable. Mr Seaton commented that insurers need new skills and competencies to interpret and apply this data overload. "Insurance staff, whether it be surveyors or underwriters, need to understand information and use it to quantify and qualify risk. So while there is an issue about getting information, you need to make sure you can use it to make the relevant decisions needed."
Graham Wallace, senior strategist, financial services, at ESRI (UK), added: "Risk management in the property market is all about information - not only should it be used to assess the risks that insurers underwrite but also look at other areas such pricing and managing accumulation."
Mr Platten noted that the sources of information the insurance market uses is a lot wider than before, and that it no longer relies only on what is provided by brokers or customers. "We work a lot closer with our surveyors than we have in the past, and there is a lot of publicly available information as well," he said, to which Mr Seaton quipped, "it is amazing what you find out on the internet".
Mr Kelleher again offered an intermediary view on the subject: "Brokers need to be more aware of the methods that underwriters are using to underwrite risks - they are more reliant on cat modelling to look at flooding and windstorms - and they need to be aware that it is being done so there are no surprises for their customers."
With the mention of cat modelling, the table was asked what their experiences were regarding the use of tools to help understand risks, and whether this proliferation was a good thing. "We have seen a huge change in the past four to five years in terms of mapping tools, and this has been driven by changing weather patterns that have forced us into doing things we haven't done before; we are now more conscious of our accumulations and our overexposures," responded Mr Platten. "We need to understand that these are tools - very valuable tools - but still just tools and more thought needs to put into how we use them."
At this juncture, Mr Seaton commented that "there is no substitute for looking at the risk". Mr Kelleher offered the view that other countries use modelling better, and that "more science should be brought to bare" in the UK.
With this in mind, Mr Mercier said that insurer models and how underwriters applied them needed to adapt in tune with climate and legislative change. "Predictability is going to change and things like how the fire brigade is managed is going to develop, so the distance from the fire station may be an important factor now but it will be the response of the fire brigade that is going to become more important. We need to work out how we are going to deal with that."
So, are underwriting tools keeping up with these developments? Mr Seaton observed: "Sometimes, the pace of change in the technology market is too quick to keep-up with. For example, I get a lot of firms offering their wares to me and I need to look at them all and sort out the wheat from the chaff, and that can that be difficult because of things like changing building methods."
From Mr Heale's perspective, a cost-benefit analysis is key and often there is a push for firms to take something on just because the capability exists.
Jane Milne, head of property at the Association of British Insurers, noted that the evolution of some of these tools may not be up to speed based on the association's recent high-profile climate change launch. "One of the things that struck me when we launched the work, was that it specifically looked at the East Coast because that is where we have cat modelling.
"However, some of the local authorities on the South Coast were saying there is a bigger problem there than the East Coast, so to an extent we are fighting the last war - the 1953 flood happened on the East Coast and that is why we have the tool there. We need the same tool for where the next crisis is going come from."
At this point, Mr Platten noted that despite Ms Milne's reservations, the market is getting better "but it is difficult to think of a 'what if' that has never happened before". Mr Heale continued: "The property market is driven by data, and data is driven by things that have happened - it is backward looking. We need to get better at using that backward data to look forward."
Mr Seaton noted that if information was missing, underwriters would err on the side of caution. Mr Heale added that while having more information often helps customers get better deals, most think it will be used against them.
This brought Ms Milne onto the pressing subject of the questions property underwriters ask, and their relevance. "You have to look at the questions we have traditionally asked and check whether they are still relevant," she says. "For example, I understand there are some companies that ask you how far you are from the water course to assess your flood risk, and that tells you absolutely nothing.
"If you are half a mile away from the Trent, you could be at more risk than if you are 10 metres away from a steep-sided embankment, so it is just about checking that. There are only so many questions you can ask but are the ones you are asking telling you what you need to know?"
Finally, the conversation turned to the prickly subject of whether there was a breakdown of relations between property claims handlers and underwriters. Mr Hutchins commented: "There is a link, as you are always interested in what you can learn from a claim and most underwriters see claims files and talk to their claims people regularly.
"There have been risk improvements that have been identified out of claims that have happened, and from that you find a way of putting it right. It's a tripartite - claims, underwriting and risk control - and you need to get those three together."
Mr Mercier concluded: "That is more important nowadays with things like modern building materials because you don't know how things will pan out - you don't know what claims you will get, how that will impact your costing and how you will build that into your modelling. More sharing of information about claims is vital to the industry."
Chair: Jonathan Swift, editor, Post
Stephanie Denton, supplements editor, Post
Graham Heale, property underwriting director, Royal and Sun Alliance
Tony Hutchins, commercial property manager, Allianz Cornhill
John Inwood, head of complex underwriting and pricing, NIG
Neil Mercier, property insurance manager, Axa
Jane Milne, head of property, Association of British Insurers
Mark Platten, property manager, Zurich Corporate
John Seaton, underwriting manager, Norwich Union
Colm Kelleher, head of CI London broking, Aon
Graham Wallace, senior strategist, financial services, ESRI (UK)
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