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

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The Profession

Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

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

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?


I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

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

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

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

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

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


Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

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

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?


A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

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

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

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

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

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