The pace of change continues to accelerate across the insurance industry, whether it is from technology, regulation or market developments, and EXPOSURE magazine helps risk professionals to explore some of the key drivers of these changes.
In this latest edition available for distribution at the Monte Carlo Rendezvous and online, the lead story looks at the recent market activity from Tower Insurance in New Zealand. By adopting high-definition earthquake modeling, Tower gained the confidence to launch risk-based pricing for its customers, providing savings for the majority of policyholders, but increases for others. EXPOSURE looks at the implications of Tower’s actions and how this could affect the New Zealand insurance market.
High resolution modeling has also helped Flood Re in the U.K. to better understand how it can work towards its remit of delivering a flood insurance market based on risk-reflective pricing that is affordable to policyholders. EXPOSURE shows how innovative use of modeling could guide Flood Re when recommending investment measures to protect properties at risk of flooding.
There has always been a balance between cross-subsidy and property-specific, risk-based underwriting and pricing in insurance, particularly for homeowners’ policies. While an actuary can easily quantify differences in fire risk for houses constructed from wood versus concrete based on claims, this becomes much more difficult when the peril concerned is infrequent, such as for earthquake or flood. Clearly risk models help to bridge this gap, but facilitating a move from cross-subsidy to risk-based pricing is more complex than simply using risk analytics. Factors such as regulation, market conditions, distribution channels and insurer IT systems all determine whether individual insurers and markets will move towards greater differentiation of risk. This is not to mention the political dimension of insurance affordability and social equity.