Reinsurers: Imagine a World Where a Global Data Format for Catastrophe Modeling Exists. A More Efficient Future Is on the Horizon

By: Justin Davies | February 13, 2022

Justin Davies is Senior Vice President, Regional Head – EMA at Xceedance. Justin has more than 25 years of financial services and insurance experience with a background in exposure management, CAT modeling, spatial analytics, and geocoding. He joined Xceedance from Xuber, where he was director of the business unit that developed and launched the Xposure software platform. Prior to Xuber, Justin spent more than five years at EQECAT, where he ran the client-facing side of the business for the U.K. and Asia Pacific region. He was also at Pitney Bowes for three years, where he managed the U.K. and Ireland financial services team for the spatial analytics product lines.

Re/insurers widely use catastrophe modeling, and it is a vital tool in risk management. However, supplying the necessary data in different formats to multiple carriers is almost always a laborious, time-consuming and thankless task.

The process is clunky: An organization puts together a statement of value — a spreadsheet listing the assets to be insured — and passes that on to the broker, who creates a slip with the organization’s address and information that may include total insured value, details about the assets, the limit and any sublimits.

The broker then sends this data to multiple carriers that will “clean” it to fit the standardized import requirements of their particular catastrophe modeling platform, making sure no information is missing or insufficient before coming back with a risk price.

If you want to change CAT modeling providers, the operational workflow must also change to get the data into a different format. A significant obstacle stopping reinsurers from using multiple CAT modeling vendors is that each supplier uses a different data standard — and there is no agreement about a single data format.

Organizations Seeking a Standard

Fortunately, things are changing for the better.

Nasdaq Tech (formerly Simplitium) created the Open Exposure Data (OED) format, which aims to be an industry-standard format for exposure data.

Additionally, the Europe-based Risk Modelling Steering Group (RMSG) — a working group within the Insurance Development Forum – and the North America-based Catastrophe Resiliency Council (CRC) are each seeking to increase the adoption of the new OED exposure data standard in their respective markets.

Both organizations aspire to create and adopt a global data format that will allow industry stakeholders to transform their data into the CAT model import format of their choice, pass data between one another, use multiple models and switch between vendors more efficiently.

While this would be welcome progress, there is still resistance from some companies that don’t want to change the way they have been operating — either through inertia or fear — because it’s not yet a proven format.

Eventually, however, I predict most organizations will join the OED initiative as it continues to gain industry support. Corporate leaders realize the benefits of freeing their team members to do more challenging and exciting work.

No Need to Manually Cleanse All the Data

Eight years ago, I gave a talk on catastrophe modeling at a conference, and I asked the audience how many of them had degrees. As most of them were atmospheric scientists, geologists and volcanologists, they all put up their hands. I asked how many had a master’s degree, and around half of them responded. A quarter of the room of 200 people had PhDs.

I then asked how many regularly “cleanse data” in a spreadsheet, and pretty much everyone put their hands up.

I asked, “Why, with all your qualifications, are you doing hands-on rudimentary data management tasks?”

There was a sharp intake of breath, but I told them rather than doing very low-value tasks, they should be researching the assumptions and methodologies of CAT models, creating new ones or giving an opinion on the results.

But they should not be moving data around to put into a model.

Technology at Its Finest

Today, we are making great strides in leveraging technologies like machine learning and artificial intelligence (AI), which are being implemented alongside the OED standard to amplify the benefits to organizations.

For example, the company I work for, Xceedance, created a platform that takes raw client data in whatever format provided and uses AI, machine learning and other technologies to identify the right data points, standardize the columns and clean the data.

It also flags instances where data is missing or doesn’t make sense — for example, if the data indicates a 50-floor building made from brick — and point out the possible error. The platform then outputs the standardized, scrubbed data and allows clients to choose either OED or CEDE formats.

Manual intervention is still required with people watching over the process and doing quality checks. It’s not yet feasible to do this as a fully automated operation. Perhaps in five years, the process will be fully automated as technology improves, but we’re not yet there.

The Very Real Benefits of CAT Modeling Standards

Meanwhile, if the global market adopts an industry-standard format for exposure data, it will bring several immediate benefits to re/insurers:

It will allow them to become model-agnostic, using a consistent method of sending data to the relevant exposure or CAT platform.
They wouldn’t have to rely on a single model supplier. With a common data standard, they could use multiple model platforms simply by running various iterations from the same database of scrubbed data.
Switching between model providers would be simpler, increasing competition and reducing cost.

Having all data — including exposure data, modeled loss and claims data — in a single place would enable data scientists to analyze it and uncover hidden value. Those new business insights could help companies refine existing products and create new ones that meet previously unknown or insufficiently understood market needs.

Additionally, having a single industry-standard data format would give re/insurers and brokers a more robust business case for automating their processes, considering a majority of those processes will stay the same regardless of which downstream CAT modeling platform they use in the future.

The development of a flexible, industry-standard data format would streamline the CAT modeling process, making it more efficient and cost-effective and simplifying the work of almost everyone involved in CAT modeling.

The result would be that highly-skilled insurance professionals would be freed from a burdensome and time-consuming task, allowing them to use their talents more appropriately and make their work more fulfilling. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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