Sponsored: Swiss Re Corporate Solutions

A Big Data Solution to Coverage Gaps

Events that trigger non-physical economic loss threaten to bring insurers' operations to a standstill, unless they are prepared.
By: | July 6, 2017 • 6 min read

Insurance is the vital backstop that keeps the business world spinning.

To make it work, underwriters need a clear loss history caused by well-defined risk events. But businesses are finding that loss comes in many forms that don’t always fit into neat parameters.

“There is a gap between the economic loss that an insured suffers from a given event, and the amount their property policy actually covers them for,” said Jamie Miller, Managing Director, Swiss Re Corporate Solutions. Increasingly, more damage is done to a company’s bottom line through business interruption, drops in revenue, and other non-physical impacts.

The challenge, from an insurance perspective, is the lack of metrics to assess the full scope of non-physical losses and pinpoint their triggers. The traditional underwriting process can’t be applied without this data.

It’s a situation where the promises and possibilities of Big Data can be applied in a concrete way.

“We’re starting to see data points emerging that can serve as indices to measure the probability of events that trigger non-physical economic loss,” Miller said.

Armed with new information, insurance innovators are creating policies built to bridge the coverage gap using an expanded category of triggers.

The Widening Gap

Globalization and reliance on modern technology have brought businesses closer together. IT systems are increasingly interconnected through the cloud. Supply chains are more complex, branching off into further flung parts of the world. While these trends yield more business opportunities, they also expose companies to greater risks and increase the likelihood of suffering a loss.

Losses indirectly incurred from events in other regions are difficult to anticipate and effectively prepare for. And their full impact can be even more difficult to measure.

“Superstorm Sandy’s impact on myriad businesses offers an example,” Miller said. “The storm halted travel to and from anywhere on the East Coast. That caused significant economic loss in the northeast to many businesses that suffered no physical damage.”

In addition to natural catastrophes, events like pandemics or terror attacks could have similar widespread impacts.

While they’ll have no damage to repair, these entities will still have expenses to pay, and revenue interruptions can have significant long-term impact on the bottom line. Traditional property policies, however, either might not respond to a loss with no physical damage, or may not cover the full extent of economic loss.

Big Data Sources

Big Data and analytics enables companies to create new metrics to assess the potential economic impact from virtually any type of event that hurts their cash flow without causing physical harm.

Airlines, for example, are using flight tracking data from companies like FlightAware to measure capacity on incoming flights. This information can then be paired with other data points to estimate the scale of potential economic loss if those flights are cancelled.

In the hospitality industry, Swiss Re Corporate Solutions is also tracking dips in bookings through revenue per available room (RevPAR), a performance metric calculated by multiplying a hotel’s average daily room rate by its occupancy rate. It helps hotel operators assess whether they are filling available rooms at their average rate.  A falling RevPAR means either the hotel’s daily rate or occupancy rate is falling. Demonstrating drops in occupancy or revenue helps to show the economic impact of a travel-impeding event like Sandy.

Collecting this type of data enables development of probability indices needed to construct insurance products predicated on new triggers.

A Data-Enabled Action Plan

“There has been a lot of talk and hype around the possibilities of Big Data, but little done to actually capture its potential and use it with real impact,” Miller said. “Using Big Data to identify new triggers and write new products is a very concrete application.”

On a case by case basis, Miller and his team at Swiss Re Corporate Solutions are building policies for clients where there is exposure outside the realm of a traditional policy. By focusing on individual, unique triggers rather than events, the coverage expands the realm of what is considered an insurable loss.

The policies are similar to parametric coverages that Swiss Re Corporate Solutions provide for severe weather events and natural catastrophes. Parametric coverage is built around specific, easily defined characteristics of an event, rather than characteristics of a loss. Big data is helping to identify those characteristics that act as policy triggers.

“We ask our clients, ‘what triggers economic loss for you?’ The answers are not always obvious,” he said. There can be anywhere from one to 10 triggers.

“Then we’ll see if we can tap into Big Data to measure those impacts that haven’t been measured before,” he said. “It’s a practical field application of predictive risk modeling. The underwriting process doesn’t change; we’re just applying new information.”

For a policy covering economic loss from pandemic, for example, loss payout could be contractually defined based on a double trigger and reputable data from one or multiple sources, like an alert from the CDC or a terror alert issued by the government, combined with an insured’s subsequent RevPAR data showing drop-off in revenue.

“The triggers don’t define the actual, local event. We’re not looking at the actual scale or location of the pandemic,” Miller said. “We’re looking at the characteristics of the event that will cause economic harm to the insured by restricting travel and demonstrating lost revenue.”

As with traditional policies, clients identify the level of risk they are willing to retain. Beyond that, probability analyses and loss triggers derived from Big Data allow underwriters to structure terms and limits without relying on historical loss experience.

Strengths of a Trigger-Based Approach

The primary benefit of a parametric policy is that it can help to cover the growing gap between what a traditional policy covers and the full extent of economic loss. The way they are underwritten – with specific, unambiguous triggers and set payout amounts – also streamlines claims adjusting and provides quicker payments.

“When the triggers are met, payments are made. It’s that simple,” Miller said. “Speed of payment is a key advantage of parametric-type polices.”

With its access to capital and expert knowledge and a large appetite for aggregate risk, Swiss Re Corporate Solutions is uniquely positioned to build these policies.

Given the increasing interconnectedness of business sectors, tech platforms and supply chains, events that cause non-physical economic loss will become more and more common. Businesses and their insurers need a more efficient way to pay these expenses and return to normal operation quickly.

“I can foresee an evolution where a parametric element becomes standard,” Miller said.

To learn more about Swiss Re Corporate Solutions’ innovation risk products, visit https://corporatesolutions.swissre.com/innovative_risk/parametric/.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Swiss Re Corporate Solutions. The editorial staff of Risk & Insurance had no role in its preparation.




Swiss Re Corporate Solutions offers innovative, high-quality insurance capacity to mid-sized and large multinational corporations and public entities across the globe.

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Risk Management

The Profession

This senior risk manager values his role in helping Varian Medical Systems support research and technologies in the fight against cancer.
By: | September 12, 2017 • 5 min read

R&I: What was your first job?

When I was 15 years old I had a summer job working for the city of Plentywood, mowing grass in the parks and ballfields, emptying garbage cans, hauling waste to the dump, painting crosswalk lines.  A great job for a teenager but I thought getting a college degree and working in an air-conditioned office would be a good plan long term.

R&I: How did you come to work in risk management?

I was enrolled in the University of Montana as a general business student, and I wanted to declare a more specialized major during my sophomore year. I was working for my dad at his insurance agency over the summer, and taking new agent training coursework on property/casualty risks in my spare time, so I had an appreciation for insurance. My dad suggested I research risk management for a career, and I transferred sight unseen to the University of Georgia to enroll in their risk management program. I did an internship as a senior with the risk management department at Sulzer Medica, and they offered me a full time job.

R&I: What could the risk management community be doing a better job of?

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We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks. If we initiate a collaborative exercise with the risk owners — people who may have unique knowledge about that particular risk — and include a cross section of people from other corporate functions, you can do an effective job of taking the risk apart to analyze it, figure out a way to manage that exposure, and then reap the upside benefits while reducing the downside exposure. That can be done with new products and new service offerings, when there isn’t coverage available for a risk. It’s asking, is there anything we can do to reduce the risk without transferring it?

R&I: What emerging commercial risk most concerns you?

Cyber liability. There’s so much at stake and the bad guys are getting more resourceful every day. At Varian, our first approach is to try to make our systems and products more resilient, so we’re trying to direct resources to preventing it from happening in the first place. It’s a huge reputation risk if one of our products or systems were compromised, so we want to avoid that at all costs.

We need to do a better job of saying yes. We tend to want to say no to many risks, but there are upside benefits to some risks.

R&I: What insurance carrier do you have the highest opinion of?

I’ve worked with a number of great ones over the years. We’ve enjoyed a great property insurance relationship with Zurich. Their loss control services are very valuable to us. On the umbrella liability side, it’s been great partnering with companies like Swiss Re and Berkley Life Sciences because they’ve put in the time and effort to understand our unique risk exposures.

R&I: How much business do you do direct versus going through a broker?

One hundred percent through a broker. I view our broker as an extension of our risk management team. We benefit from each team member’s respective area of expertise and experience.

R&I: Is the contingent commission controversy overblown?

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I think so. The brokers were kind of villainized by Spitzer. I think it’s fair for brokers and insurers to make a reasonable profit, and if a portion of their profit came from contingent commissions, I’m fine with that. But I do appreciate the transparency and disclosure that came out as a result of the fiasco.

R&I: Are you optimistic about the US economy or pessimistic and why?

David Collins, Senior Manager, Risk Management, Varian Medical Systems Inc.

While we might be doing fine here in the U.S. from an economic perspective, the Middle East is a mess, and we’re living with nuclear threat from North Korea. But hope springs eternal, so I’m cautiously optimistic. I’m hoping saner minds prevail and our leaders throughout the world work together to make things better.

R&I: Who is your mentor and why?

My Dad got me started down the insurance and risk path. I’ve also been fortunate to work for or with a number of University of Georgia alumni who’ve been mentors for me. I’ve worked side by side with Karen Epermanis, Michael Rousseau, and Elisha Finney. And I’ve worked with Daniel Dean in his capacity as a broker.

R&I: What have you accomplished that you are proudest of?

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Raising my kids. I have a 15-year-old and 12-year-old, and they’re making mom and dad proud of the people they’re turning into.

On a professional level, a recent one would be the creation and implementation of our global travel risk program, which was a combined effort between security, travel and risk functions.

We have a huge team of service personnel around the world, traveling to customer sites to do maintenance and repair. We needed a way to track, monitor and communicate with them. We may need to make security arrangements or vet their lodging in some circumstances.

R&I: What do your friends and family think you do?

My 12-year-old son thought my job responsibilities could be summed up as a “professional worrier.” And that’s not too far off.

R&I: What about this work do you find the most fulfilling or rewarding?

Varian’s mission is to focus energy on saving lives. Proper administration of the risk function puts the company in a better position to financially support research that improves products and capabilities, helps to educate health care providers and support cancer care in general. It means more lives saved from a terrible disease. I’m proud to contribute toward that.

When you meet someone whose cancer has been successfully treated with one of our products, it’s a powerful reward.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]