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Multi-Class Exposure Management: Marine, Cyber, Terror Drive
Monday 07 December 2015
Author: Russell Group
Tags: #Exposure management, #Marine exposures, #Cyber exposures, #terror risks, #enterprise risk

As was reported in Insurance Day, the explosion at the port of Tianjin on August 12 was a significant event for the marine re/insurance industry in a number of respects. The disaster, which is set to become one of Asia’s largest manmade losses, is also highly likely to be the biggest loss for the industry this year.

After two costly, unforeseen loss events in the space of three years, the marine cargo insurance market understands a change is needed in the way it prices and manages its catastrophe exposures. And, as with the sinking of the Costa Concordia, the nature and the extent of the losses suffered by the market as a result of the Tianjin explosion have caused some in the industry to question the market’s ability to understand and manage its exposures

As Suki Basi, managing director of the Russell Group, explains in Insurance Day: “An important part of the problem is cargo insurance is a “mass-market” product and typically a very efficient one, where underwriting limits are set and delegated across different regions of the world.” The problem is, Basi says, that the information flow of what is underwritten – the values at risk, at what location and at what time – is not as efficient. Indeed, it is mostly inconsistent and sometimes missing all together.

“Furthermore, the accumulation of multiple policies and the liability accumulating at a location isn’t really being performed because of the lack of consistent and efficient underlying information flow. The industry is pricing-led rather than exposure-led. If it were the latter, then the liability being generated by these events wouldn’t be such a surprise,” Basi says.

Although the cargo market is particularly culpable in this regard, Basi describes the issue of poor information flow as a characteristic feature across most of the insurance industry, which is something that will need to change if the industry is really going to deal with the systemic exposures being generated by a major catastrophe event.

For Basi, the industry has little choice but to mend its ways. As these loss events become more complex and draw more product lines into the same event, the industry will need to improve its understanding of the liability emanating from such events. “It will start with better data capture and standards for such, from which models will then evolve. Similar approaches will be needed to address other liability classes,” he says.

Marine underwriters have concerns on other fronts as reported by the Daily Telegraph, which explained that UK Government Ministers have highlighted passenger ferries as a weak link in Britain’s defence against Islamist terrorists, amid fears they could hijack a ferry in the Channel and commit slaughter before security forces could reach it.

According to the Telegraph, a security expert has called for the introduction of sea marshals – armed officers – to be introduced on ferries, as well as on trains, to protect passengers in the event of a terrorist attack. A senior Government source admitted that security at ports and on ferries was a major concern. The source said: “Ports are something we have started to look at.

“Security at airports has been tightened in recent years and having done that there is a displacement affect. The more you make one area of attack less attractive, you inevitably make another more attractive.”

Security experts believe trains and football stadia would also continue to be a prime target for Islamic State of Iraq and the Levant (Isil). Olivier Guitta, managing director of GlobalStrat, an international security consultancy, said he was convinced Isil will continue to target trains until they succeed. He said football matches would also continue to be under threat, despite the attack on the Stade de France having been thwarted.

It is increasingly clear that the mutating terror threat has the capability to cause unprecedented disruption and losses to (re)insurers across specialty classes and geographies as geo-political fragmentation in an increasingly connected world heightens global risk.

Insurers are tuned in to that risk but there are mounting concerns among underwriters that technological advances are leaving risk management strategies in tatters. Indeed, not only are insurers concerned as to the potential exposures faced by their clients but a recent Xchanging plc survey revealed that only one-third of insurers in the London market believe their firm could withstand a major cyber-attack.

Almost half felt they were underprepared, according to Xchanging plc, the U.K. business technology and services provider. Xchanging pointed to figures quoted by the U.K. government in September, which revealed that 74 percent of small businesses, and 90 percent of major businesses, had a cyber breach of security in the previous year.

Thirty-six percent of respondents to the survey, which was conducted at the Xchanging London Market Conference 2015 this month, said they “definitely” have sufficient measures in place to withstand a major cyber-attack. However, 30 percent of respondents felt they are only partially protected, 16 percent said they are insufficiently protected, and 18 percent were unsure.

The thirty-six percent of insurers that said they definitely have sufficient measures in place to withstand a cyber-attack either know something that Governments and major corporations such as Sony don’t themselves fully understand – or they are wildly optimistic!

In such an environment it becomes wise to invest in any capability that captures a corporate’s exposure to technology vendors and compares with its own in-built vendor listing to assess a corporate’s risk profile to probable security threats and cyber events. Russell Group’s ALPS Enterprise risk modelling does all this and more while also capturing political violence asset data to support portfolio exposure analytics for actual, theoretical or probabilistic political risk events.

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