Putting ERM on Offense
In the world of property/casualty insurance, you have natural catastrophe risks — earthquakes, hurricanes, tornados — and then you have everything else.
“My role is everything else,” said XL Catlin SVP David Brooks. Particularly when it comes to enterprise risk management (ERM) and identifying, quantifying and managing all risks and how they intermingle across lines of business and geographies.
That’s a big role, particularly at a risk-assuming organization such as XL Catlin. XL before the merger had been an interesting enough beast, taking on big, complex risks — and a diversity of risks, too, across lines and the commercial spectrum — as both an insurer and a reinsurer.
Since the formal launch of XL Catlin on May 1, Brooks is tasked with also understanding the whole new world of a Lloyd’s market. Catlin has some of the same approaches as the old XL, but Catlin also has different products. Pre-merger, XL was in the $7.4 billion gross P&C premium written range; Catlin in the $5.3 billion range.
To wrap their minds around the risks of the two organizations, Brooks and his team devised two innovative tools.
One is the Emerging Risk Task Force, which covers not just developing exposures, such as the liability implications of medical monitoring for concussions, but also risks that are already out there causing consternation, such as cyber, nanotechnology and terrorism.
Besides helping to monitor and quantify these exposures, the task force is gaining enough understanding to produce thought leadership-level guidance on them.
Between nat CAT risks and everything else, “my role is everything else.” — David Brooks, SVP, ERM, head of man-made catastrophe, XL Catlin
The stand-out success that Brooks has achieved here is bringing underwriters into his ERM approach. Typically, and perhaps in most any other organization, underwriters don’t want to talk to the ERM team within an insurer.
They view ERM as a defensive mechanism, an organization of “no.” But Brooks’ approach is offensive. It’s about not shying away from new risks but working with underwriters to understand them, aggregate them and develop opportunities around them.
The second of Brooks’ innovative tools is a risk aggregation tool. For nat CAT risks, such tools already exist, whether firms build these catastrophe models in-house or leverage third-party software. In-house, he and the organization can now take a look at exposures that cut across products, industries and attachments, with claims and premium data included to provide an added dimension.
Individual businesses within XL Catlin know what’s within their silos, and the reinsurance arm does its thing while the insurance side does its own. But someone needs to step back and understand how it all fits together, in terms of probable maximum losses, drivers of risk and financial modeling, to inform risk/reward-based strategic decisions.
Brooks continues to push the boundaries as well. He and his team are working with outside firms on CAT model-type tools for casualty perils. They also are diving deep into a risk with systemic ramifications that are “a little unsettling,” as he put it: cyber. It stops nothing short of understanding how cyber has implications for each and every XL Catlin product.
He comes to his senior leadership role at heart as an “insurance geek”— a rare breed with both an undergrad and a master’s degree in risk and 16 years of brokering experience before he joined XL in 1998. He also has taught ERM courses for 12 years.
That helps in part perhaps explain why the underwriters don’t mind his ERM approach to their work.
“The underwriters bring ERM in,” he said.