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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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Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]