Column: Roger's Soapbox

Could Have Been Worse

By: | December 14, 2017 • 3 min read
Roger Crombie is a United Kingdom-based columnist for Risk & Insurance®. He can be reached at [email protected]

Only claims made affect premium rates, right? Wrong.

British insurers use a central database, the Claims and Underwriting Exchange, to share data.

The Exchange records any inquiry about a loss as a loss. The moment you ask if you’re insured, the conversation becomes a “notification” and goes on your record as a loss report, even if you make no related claim.

Say you have pet insurance and accidentally set fire to your cat. You call to ask if the event is covered on your policy, but it is not, so you don’t claim and the insurer suffers no loss. As a result of the call, however, your premium rises, like the smoke pouring off your cat.

The Lloyd’s/RMS report said insurers should maintain an “alternative-claims book,” tracking hypothetical losses from near-misses and “could-have-been-worses,” multiplied by their probability. They might want to keep a “poor use of English” book, too.

Companies won’t discuss this matter publicly. That’s just how it is, so don’t call your insurance company if you suffer a loss and don’t know if it might be covered. Ask a friend or a palm reader — anyone other than your insurer.

In its defense, the practice of logging uninsured losses as losses is, at least, based on real events. But Lloyd’s and modelling firm RMS now suggest that insurers not limit themselves to basing premiums on actual losses, covered or otherwise. They should also price in fictional losses.

The Economist, which broke the story, reported on a near-miss between two planes taxiing at San Francisco airport. Had one pilot not pulled up sharply, the planes might have crashed into each other. As it was, he did and they didn’t.


Underwriters, until now, based premiums on events that happened. Claims in the airplane insurance market have lately been low, and premiums are therefore falling. Can’t have that, said the report, advising underwriters to factor into their pricing “what if” scenarios. Insurance companies that fail to track and record such non-events are missing an opportunity, Lloyd’s and RMS stated.

For emerging risks, a lack of precedent makes pricing tricky. Many insurers would not write terrorism risk in the months following 9/11, for example, because of a shortage of historical terrorism data.

Sane underwriters took a similar line on cyber risk for a while, until just about every company in the world was hit, providing a basis on which to price the risk of it happening again, which is about 100 percent.

The Lloyd’s/RMS report said insurers should maintain an “alternative-claims book,” tracking hypothetical losses from near-misses and “could-have-been-worses,” multiplied by their probability. They might want to keep a “poor use of English” book, too.

Suppose Hurricane Irma had hit Miami. The chance of that happening at one point was about 20 percent. The hit would have increased estimated maximum losses by $100 billion (The Economist said).

In the alternative register, this would be recorded as an additional potential loss of $20 billion. Besides deepening the data pool on which underwriters base risk assessments, Lloyd’s and RMS argue, such calculations could help regulators submit catastrophe models to stress tests.

How sensible is all this? Not very.

Telling insureds who have never claimed on a policy that their premiums have tripled because of losses they did not suffer seems unlikely to help anyone, especially the industry, in the long run. (Slaps forehead, stops writing.) &

More from Risk & Insurance

More from Risk & Insurance

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.


Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.


This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.


Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.


AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.


Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]