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Insurance Solutions

Formerly Moody’s RMS

NIGEL ALLENMay 05, 2020
This changes everything
This changes everything
This Changes Everything
May 05, 2020

At Exceedance 2020, RMS explored the key forces currently disrupting the industry, from technology, data analytics and the cloud through to rising extremes of catastrophic events like the pandemic and climate change. This coupling of technological and environmental disruption represents a true inflection point for the industry. EXPOSURE asked six experts across RMS for their views on why they believe these forces will change everything Cloud Computing: Moe Khosravy, Executive Vice President, Software and Platforms How are you seeing businesses transition their workloads over to the cloud? I have to say it’s been remarkable. We’re way past basic conversations on the value proposition of the cloud to now having deep technical discussions that are truly transformative plays. Customers are looking for solutions that seamlessly scale with their business and platforms that lower their cost of ownership while delivering capabilities that can be consumed from anywhere in the world. Why is the cloud so important or relevant now? It is now hard for a business to beat the benefits that the cloud offers and getting harder to justify buying and supporting complex in-house IT infrastructure. There is also a mindset shift going on — why is an in-house IT team responsible for running and supporting another vendor’s software on their systems if the vendor itself can provide that solution? This burden can now be lifted using the cloud, letting the business concentrate on what it does best. Has the pandemic affected views of being in the cloud? I would say absolutely. We have always emphasized the importance of cloud and true SaaS architectures to enable business continuity — allowing you to do your work from anywhere, decoupled from your IT and physical footprint. Never has the importance of this been more clearly underlined than during the past few months. Risk Analytics: Cihan Biyikoglu, Executive Vice President, Product What are the specific industry challenges that risk analytics is solving or has the potential to solve? Risk analytics really is a wide field, but in the immediate short term one of the focus areas for us is improving productivity around data. So much time is spent by businesses trying to manually process data — cleansing, completing and correcting data — and on conversion between incompatible datasets. This alone is a huge barrier just to get a single set of results. If we can take this burden away, give decision-makers the power to get results in real time with automated and efficient data handling, then with that I believe we will liberate them to use the latest insights to drive business results. Another important innovation here are the HD Models™. The power of the new engine with its improved accuracy I believe is a game changer that will give our customers a competitive edge. How will risk analytics impact activities and capabilities within the market? As seen in other industries, the more data you can combine, the better the analytics become — that’s the universal law of analytics. Getting all of this data on a unified platform and combining different datasets unearths new insights, which could produce opportunities to serve customers better and drive profit or growth. What are the longer-term implications for risk analytics? In my view, it’s about generating more effective risk insights from analytics, results in better decision- making and the ability to explore new product areas with more confidence. It will spark a wave of innovation to profitably serve customers with exciting products and understand the risk and cost drivers more clearly. How is RMS capitalizing on risk analytics? At RMS, we have the pieces in place for clients to accelerate their risk analytics with the unified, open platform, Risk Intelligence™, which is built on a Risk Data Lake™ in the cloud and is ready to take all sources of data and unearth new insights. Applications such as Risk Modeler™ and ExposureIQ™ can quickly get decision-makers to the analytics they need to influence their business. Open Standards: Dr. Paul Reed, Technical Program Manager, RDOS Why are open standards so important and relevant now? I think the challenges of risk data interoperability and supporting new lines of business have been recognized for many years, as companies have been forced to rework existing data standards to try to accommodate emerging risks and to squeeze more data into proprietary standards that can trace their origins to the 1990s. Today, however, with the availability of big data technology, cloud platforms such as RMS Risk Intelligence and standards such as the Risk Data Open Standard™ (RDOS) allow support for high-resolution risk modeling, new classes of risk, complex contract structures and simplified data exchange. Are there specific industry challenges that open standards are solving or have the potential to solve? I would say that open standards such as the RDOS are helping to solve risk data interoperability challenges, which have been hindering the industry, and provide support for new lines of business. In the case of the RDOS, it’s specifically designed for extensibility, to create a risk data exchange standard that is future-proof and can be readily modified and adapted to meet both current and future requirements. Open standards in other industries, such as Kubernetes, Hadoop and HTML, have proven to be catalysts for collaborative innovation, enabling accelerated development of new capabilities. How is RMS responding to and capitalizing on this development? RMS contributed the RDOS to the industry, and we are using it as the data framework for our platform called Risk Intelligence. The RDOS is free for anyone to use, and anyone can contribute updates that can expand the value and utility of the standard — so its development and direction is not dependent on a single vendor. We’ve put in place an independent steering committee to guide the development of the standard, currently made up of 15 companies. It provides benefits to RMS clients not only by enhancing the new RMS platform and applications, but also by enabling other industry users who create new and innovative products and address new and emerging risk classes. Pandemic Risk: Dr. Gordon Woo, Catastrophist How does pandemic risk affect the market? There’s no doubt that the current pandemic represents a globally systemic risk across many market sectors, and insurers are working out both what the impact from claims will be and the impact on capital. For very good reasons, people are categorizing the COVID-19 disease as a game-changer. However, in my view, SARS [severe acute respiratory syndrome] in 2003, MERS [Middle East respiratory syndrome] in 2012 and Ebola in 2014 should also have been game-changers. Over the last decade alone, we have seen multiple near misses. It’s likely that suppression strategies to combat the coronavirus will probably continue in some form until a vaccine is developed, and governments must strike this uneasy balance between their economies and the opening of their populations to exposure from the virus. What are the longer-term implications of this current pandemic for the industry? It’s clear that the mitigation of pandemic risk will need to be prioritized and given far more urgency than before. There’s no doubt in my mind that events such as the 2014 Ebola crisis were a missed opportunity for new initiatives in pandemic risk mitigation. Away from the life and health sector, all insurers will need to have a better grasp on future pandemics, after seeing the impact of COVID-19 and its wide business impact. The market could look to bold initiatives with governments to examine how to cover future pandemics, similar to how terror attacks are covered as a pooled risk. How is RMS helping its clients in relation to COVID-19? Since early January when the first cases emerged from Wuhan, China, we’ve been supporting our clients and the wider market in gaining a better understanding of the diverse loss implications of COVID-19. Our LifeRisks® team has been actively assisting in pandemic risk management, with regular communications and briefings, and will incorporate new perspectives from COVID-19 into our infectious diseases modeling. Climate Change: Ryan Ogaard, Senior Vice President, Model Product Management Why is climate change so relevant to the market now? There are many reasons. Insurers and their stakeholders are looking at the constant flow of catastrophes, from the U.S. hurricane season of 2017, wildfires in California and bushfires in Australia, to recent major typhoons and wondering if climate change is driving extreme weather risk, and what it could do in the future. They’re asking whether the current extent of climate change risk is priced into their premiums. Regulators are also beginning to conduct stress tests on the potential impact of climate change in the future, and insurers must respond. How will climate change impact how the market operates? Similar to any risk, insurers need to understand and quantify how the physical risk of climate change will impact their portfolios and adjust their strategy accordingly. Also, over the coming years it appears likely that regulators will incorporate climate change reporting into their regimes. Once an insurer understands their exposure to climate change risk, they can then start to take action — which will impact how the market operates. These actions could be in the form of premium changes, mitigating actions such as supporting physical defenses, diversifying the risk or taking on more capital. How is RMS responding to market needs around climate change? RMS is listening to the needs of clients to understand their pain points around climate change risk, what actions they are taking and how we can add value. We’re working with a number of clients on bespoke studies that modify the current view of risk to project into the future and/or test the sensitivity of current modeling assumptions. We’re also working to help clients understand the extent to which climate change is already built into risk models, to educate clients on emerging climate change science and to explain whether there is or isn’t a clear climate change signal for a particular peril. Cyber: Dr. Christos Mitas, Vice President, Model Development How is this change currently manifesting itself? While cyber risk itself is not new, for anyone involved in protecting or insuring organizations against cyberattacks, they will know that the nature of cyber risk is forever evolving. This could involve changes in those perpetrating the attacks, from lone wolf criminals to state-backed actors or the type of target from an unpatched personal computer to a power-plant control system. If you take the current COVID-19 pandemic, this has seen cybercriminals look to take advantage of millions of employees working from home or vulnerable business IT infrastructure. Change to the threat landscape is a constant for cyber risk. Why is cyber risk so important and relevant right now? Simply because new cyber risks emerge, and insurers who are active in this area need to ensure they are ahead of the curve in terms of awareness and have the tools and knowledge to manage new risks. There have been systemic ransomware attacks over the last few years, and criminals continue to look for potential weaknesses in networked systems, third-party software, supply chains — all requiring constant vigilance. It’s this continual threat of a systemic attack that requires insurers to use effective tools based on cutting-edge science, to capture the latest threats and identify potential risk aggregation. How is RMS responding to market needs around cyber risk? With our latest RMS Cyber Solutions, which is version 4.0, we’ve worked closely with clients and the market to really understand the pain points within their businesses, with a wealth of new data assets and modeling approaches. One area is the ability to know the potential cyber risk of the type of business you are looking to insure. In version 4.0, we have a database of over 13 million businesses that can help enrich the information you have about your portfolio and prospective clients, which then leads to more prudent and effective risk modeling. A Time to Change Our industry is undergoing a period of significant disruption on multiple fronts. From the rapidly evolving exposure landscape and the extraordinary changes brought about by the pandemic to step-change advances in technology and seismic shifts in data analytics capabilities, the market is undergoing an unparalleled transition period. As Exceedance 2020 demonstrated, this is no longer a time for business as usual. This is what defines leaders and culls the rest. This changes everything.

Helen YatesMay 05, 2020
Cyber Solutions 4.0: Modeling systemic risk
Cyber Solutions 4.0: Modeling systemic risk
Cyber Solutions 4.0: Modeling Systemic Risk
May 05, 2020

The updated RMS cyber model leverages data, software vulnerabilities, attack scenarios and advanced analytics to help insurers and reinsurers get a handle on their risk aggregations From distributed denial of service (DDoS) attacks, cloud outages and contagious malware through to cyber physical exposures, cyber risk is a sentient and ever-changing threat environment. The cyber insurance market has evolved with the threat, tailoring policies to the exposures most concerning businesses around the world, ranging from data breach to business interruption. But recent events have highlighted the very real potential for systemic risks arising from a cyberattack. Nowhere was this more obvious than the 2017 WannaCry and NotPetya ransomware attacks. WannaCry affected over 200,000 computers in businesses that spanned industry sectors across 150 countries, including more than 80 National Health Service organizations in the U.K. alone. Had it not been for the discovery of a “kill switch,” the malware would have caused even more disruption and economic loss. Just a month after WannaCry, NotPetya hit. It used the same weakness within corporate networks as the WannaCry ransomware, but without the ability to jump from one network to another. With another nation-state as the suspected sponsor, this new strain of contagious malware impacted major organizations, including shipping firm Maersk and pharmaceutical company Merck. Both cyber events highlighted the potential for systemic loss from a single attack, as well as the issues surrounding “silent” cyber cover. The high-profile claims dispute arising between U.S. snack-food giant Mondelez and its property insurer, after the carrier refused a US$100 million claim based on a war exclusion within its policy, fundamentally changed the direction of the insurance market. It resulted in regulators and the industry coming together in a concerted push to clarify whether cyber cover was affirmative or non-affirmative. The Cyber Black Swan There are numerous sources of systemic risk arising from a cyber incident. For the cyber (re)insurance market to reach maturity and a stage at which it can offer the limits and capacity now desired by commercial clients, it is first necessary to understand and mitigate these aggregate exposures. A report published by RMS and the Cambridge Centre for Risk Studies in 2019 found there is increasing potential for systemic failures in IT systems or for systemic exploitation of strategically important technologies. Much of this is the result of an ever more connected world, with a growth in the internet of things (IoT) and reliance on third-party vendors. Supply chain attacks are a source of systemic risk, which will continue to grow over time with the potential for significant accumulation losses for the insurance industry As the report states, “Supply chain attacks are a source of systemic risk, which will continue to grow over time with the potential for significant accumulation losses for the insurance industry.” The report also noted that many of the victims of NotPetya were unintentionally harmed by the ransomware, which is believed to have been a politically motivated attack against Ukraine. Cyber Models Meet Evolving Market Demands Models and other risk analysis tools have become critical to the ongoing development and growing sophistication of the cyber insurance and reinsurance markets. As the industry continues to adapt its offering, there is demand for models that capture the latest threats and enable a clearer understanding into potential aggregations of risk within carriers’ books of business. From introducing exclusions on the silent side and developing sophisticated models to understanding the hazard itself and modeling contagious malware as a physical process, we are gaining ever-greater insight into the physics and dynamics of the underlying risk  Dr. Christos Mitas, RMS  As the insurance industry has evolved in its approach to cyber risk, so too has the modeling. Version 4.0 of the RMS Cyber Solutions, released in October 2019, brings together years of extensive research into the underlying processes that underpin cyber risk. It leverages millions of data points and provides expanded data enrichment capabilities on 13 million global companies, leading to improved model accuracy, explains Dr. Christos Mitas, head of the RMS cyber risk modeling group. “We have been engaging with a couple of dozen clients for the past four years and incorporating features into our solution that speak to the pain points they see in their day-to-day business,” he says. “From introducing exclusions on the silent side and developing sophisticated models to understanding the hazard itself and modeling contagious malware as a physical process, we are gaining ever-greater insight into the physics and dynamics of the underlying risk.” Feedback over the past six months since the release of Version 4.0 has been extremely positive, says Mitas. “There has been genuine amazement around the data assets we have developed and the modeling framework around which we have organized this data collection effort. There has been a huge effort over the last two years by our data scientists who have been using artificial intelligence (AI) and machine learning (ML) to collect data points from cyber events across all the sources of cyber risk that we model. “Cyber 4.0 also included new functionality to address software vulnerabilities and motivations of cyber threat actor groups that have been active over the last few years,” he continues. “These are all datasets that we have collected, and they are complemented with third-party sources — including academia, cybersecurity firms, and partners within the insurance industry — into cyber damage events.” There has been strong support from the reinsurance market, which has been a little bit behind the primary insurance market in developing its cyber product suite. “The reinsurance market has not developed as much as you would expect it to if they were relying on robust models,” says Mitas. “So, we have enhanced reinsurance modeling in our financial engines and exceedance probability (EP) curves to meet this need. “We’ve had some good feedback from reinsurance pieces we have included in Version 4.0,” he continues. “From a cybersecurity point of view, very sophisticated clients that work with internal cybersecurity teams have commented on the strength of some of our modeling for contagious malware, and for cloud outages and data breach.” Quoted Source: Barracuda Networks Click here to learn more about RMS’s purpose-built cyber model

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