EXPOSURE: Data Flow in a Digital Ecosystem

This is a taster of an article published in the latest edition of EXPOSURE magazine. For the full article click here or visit the EXPOSURE website.

There has been much industry focus on the value of digitization at the customer interface, but EXPOSURE magazine asks industry thought-leaders, what is its role in risk management and portfolio optimization? How can we help teams on the underwriting frontline?

For Louise Day, director of operations at the International Underwriting Association (IUA), a major issue is that much of the data generated across the industry is held remotely from the underwriter.

“You have data being keyed in at numerous points and from multiple parties in the underwriting process. However, rather than being stored in a format accessible to the underwriter, it is simply transferred to a repository where it becomes part of a huge data lake with limited ability to stream that data back out.”

“The underwriter is often disconnected from critical risk data,” believes Shaheen Razzaq, senior product director at RMS. “This creates significant challenges when trying to accurately represent coverage, generate or access meaningful analysis of metrics and grasp the marginal impacts of any underwriting decisions on overall portfolio performance.

“Success lies not just in attempting to connect the different data sources together, but to do it in such a way that can generate the right insight within the right context and get this to the underwriter to make smarter decisions.”

Without the digital capabilities to connect the various data sets and deliver information in a digestible format to the underwriter, their view of risk can be severely restricted — particularly given that server storage limits often mean their data access only extends as far as current information. Many businesses find themselves suffering from DRIP, being data rich but information poor, without the ability to transform their data into valuable insight.

According to Farhana Alarakhiya, vice president of products at RMS, when extrapolating this lack of data granularity up to the portfolio level and beyond, the potential implications of poor risk management at the point of underwriting can be extreme.

“Not all analytics are created equal. There can be a huge difference between good, better and best data analysis. Take a high-resolution peril like U.S. flood, where two properties meters apart can have very different risk profiles. Without granular data at the point of impact your ability to make accurate risk decisions is restricted. If you roll that degree of inaccuracy up to the line of business and to the portfolio level, the ramifications are significant.

Looking beyond the organization and out to the wider flow of data through the underwriting ecosystem, the lack of format consistency is creating a major data blockage, according to Jamie Garratt, head of digital underwriting strategy at Talbot.

“You are talking about trying to transfer data which is often not in any consistent format along a value chain that contains a huge number of different systems and counterparties,” he explains. “And the inability to quickly and inexpensively convert that data into a format that enables that flow, is prohibitive to progress.

“You are looking at the formatting of policies, schedules and risk information, which is being passed through a number of counterparties all operating different systems. It then needs to integrate into pricing models, policy administration systems, exposure management systems, payment systems, et cetera. And when you consider this process replicated across a subscription market the inefficiencies are extensive.”

So how does this concept of a functioning digital ecosystem map to the (re)insurance environment? The challenge, of course, is not only to create joined-up, real-time data processes at the organizational level, but also look at how that unified infrastructure can extend out to support improved data interaction at the industry level.

There are no organizations in today’s (re)insurance market that cannot perceive at least a marginal benefit from integrating digital capabilities into their current underwriting processes. And for those that have started on the route, tangible benefits are already emerging. Yet making the transition, particularly given the clear scale of the challenge, is daunting.

“You can’t simply unplug all of your legacy systems and reconnect a new digital infrastructure,” says IUA’s Day. “You have to find a way of integrating current processes into a data ecosystem in a manageable and controlled manner. From a data-gathering perspective, that process could start with adopting a standard electronic template to collect quote data and storing that data in a way that can be easily accessed and transferred.”

“The ideal digital scenario from a risk management perspective,” explains Alarakhiya, “is that all parties are operating on a single analytical framework or backbone built on the same rules, with the same data and using the same financial calculation engines, ensuring that on all risk fronts you are carrying out an ‘apples-to-apples’ comparison. That consistent approach extends from the individual risk decision, to the portfolio, to the line of business, right up to the enterprise-wide level.”

“A modern pricing and portfolio risk evaluation framework can reduce assessment times, providing direct access to relevant internal and external data in almost real time,” states Ben Canagaretna, group chief actuary at Barbican Insurance Group. “Creating a data flow, designed specifically to support agile decision-making, allows underwriters to price complex business in a much shorter time period.”

For the full article click here or visit the EXPOSURE website for free access to over 40 articles.