New Year Risk Resolutions

With the 1/1 renewals fresh in the memory, now it is time to prepare for 2023…

It’s that time of year again.  We feel an almost overwhelming need for a refresh, a restart, a rebrand. The term ‘resolutions’ drops into conversation with family, friends and colleagues.  We start the year with a fresh enthusiasm for self-betterment, to embrace good habits and set new goals.

For those of us in the insurance ecosystem, what should be at the top of our list?

Resolving to make the 2023 renewals much better than those we experienced in 2022!

But how?

Hard gets harder

The 1st January 2023 reinsurance renewals were anything but straightforward.  Gallagher Re went so far as to describe it as “frustrating”, an unusually frank choice of words from a large reinsurance broker.  

Macroeconomic and geopolitical upheavals, alongside growingly impactful natural catastrophes, have introduced significant uncertainty and volatility into the (re)insurance market.  Global property catastrophe programs saw a 37% increase year-on-year, the largest such upward movement since 1992, following the game changing catastrophe that was Hurricane Andrew.  Global direct and facultative rates saw a 45% increase when compared to the previous year, representing nearly one-third of the 160% increase experienced since the start of the hardening market phase back in 2017.

And experts predict that buyers will see similarly challenging dynamics in 2023, with continuing rate increases in the face of adverse loss experience, rising claims inflation and further hikes in insurers’ costs of capital.

The intricacies of this marketplace demands the best possible risk information must be presented to (re)insurers in order to unlock capacity. It is inevitable that (re)insurers will start to make disciplined plays designed to leverage the firming rate environment, but only where the risk profile of the underlying portfolio is understood with confidence.

Submission quality is the key

A direct correlation exists between the quality, depth and extent of underwriting information gathered by the primary carrier / broker and subsequently provided to the reinsurer, and the efficiency of the (re)insurance market. As relevant underwriting information moves up through the various layers, the market can act most efficiently to offer the best price and coverage terms.

When lacking even the most basic risk information, reinsurance actuaries and underwriters must make gross underwriting assumptions that can badly affect reinsurance pricing – often resulting in higher reinsurance premiums.  Something as basic as a professional evaluation of sprinkler system adequacy may result in significant savings in the ground-up premium charged to the primary insured, as well as potentially additional credits being given by the reinsurer.  But to do so requires an inspection of the risk and provision of a survey report.

On average, property submissions are considered to be below minimum acceptable quality levels in all territories, with the exception US & Canada.  This is one of the (entirely predictable!) findings from a survey conducted by the Institute and Faculty of Actuaries (IFoA) into what makes for a good reinsurance underwriting submission, which concluded that “there continues to be an almost overwhelming gap between information provided in the submission and requirements for thorough reinsurance pricing”.

When survey participants were asked the question ”how much does the quality of submission impact your price?” the responses were are shown in the chart below;

Source: Institute & Faculty of Actuaries (IFoA)

Clearly this is a subjective question, but no single respondent said that submission quality had no impact on price, and approximately 50% said the price impact was “high” or “very high”.  Basic risk profile details (occupancy type, exact location, protections including sprinklers, adjacent properties, etc) were usually received by only 34% of respondents. Given the importance of COPE information on ground-up and excess pricing and the availability of corresponding market exposure curves, the fact that this information is not more consistently gathered and communicated borders on scandalous in this day and age.

Breaking the cycle of poor risk information

With [VRS]TM Virtual Risk Space from Virtual i Technologies it is now possible to gather a proportionate level of structured information from each and every risk location in a cost-effective manner.

With [VRS]TM Virtual Risk Space, we have codified and embedded the experience of the very best Risk Surveyors into dynamic questionnaires, which are the vehicle by which structured observations from property surveys are gathered and evidenced via photos, videos, GPS coordinates, audio recordings and more.  Underpinning those questionnaires is a risk scoring system which replicates the type of pattern recognition that was previously the purview of experienced Risk Surveyors alone.  And the data from each inspection can be aggregated to allow for portfolio level analysis, advanced catastrophe modeling and accumulation queries.

Are you a cedant, direct or primary insurer?  Volatility will increasingly be transferred to you through the reduction/removal of surplus lines and increases in gross retention.  Make sure you really know what is underpinning property submissions as they come in.

Are you a broker or advisor?  You probably need no reminder of the increasingly technical focus with which (re)insurers will be approaching renewal discussions.  How will you be lining your team out on this new playing field?  Will your tactics get results for your clients?

Are you the reinsurance underwriter still catching your breath from 1/1?  Are you going to make your underwriting information requirements clear and unambiguous for your friends in the broking and primary insurance communities?  Or will you resign yourself to a renewal groundhog day this year?

Make your 2023 Risk Resolution now!

Better risk information benefits all parties involved in the property insurance transaction – from the main street buyer to the agent to the primary insurance carrier to the reinsurers.

The bar is rising with respect to risk selection. Reinsurers are more selective in deploying scarce capacity, are showing less appetite for broad-brush market support and are committing to a firm order later and later in the renewal cycle.  

The time to get in shape for the next reinsurance renewal season isn’t this October, or even this July.  It’s right now

Speak to us at Virtual i Technologies to understand how [VRS]TM Virtual Risk Space can put you on the path to success no matter how hard things get in 2023.

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