Insurance in the data age

The sector has sailed into some stormy weather. Howden’s David Flandro and Michelle To highlight how data and analytics are essential to chart a course to a smoother future…

The insurance market has undergone its most serious dislocation since the financial crisis.

Inflation is rising to levels not seen even by senior members of our industry in their working lifetimes; bonds and equities have fallen in tandem for the first time since the early 1980s. Largely as a result of this, dedicated reinsurance capital fell by 11 percent in the first half of the year, and primary insurance capital potentially further. This coalescence of events is creating capacity constraints which mean rates on line are continuing to rise in most geographies and lines of business.

What does this mean for the future development of the insurance market? Those longest in the tooth will be able to draw on memories of hard markets past, which in itself is a valuable resource. However, there are two outstanding questions: where is the data and where are the analytic tools to enable us to navigate this new phase of the cycle?

The insurance data gap

The insurance industry has so far lagged behind other financial markets in its ability to access in-depth, homogenous market data and analytical innovation. In other capital markets, historic pricing of thousands of assets, commodities and derivatives is available with a few keystrokes. While this kind of information exists in certain areas of insurance, it is either fragmented into specific markets or jealously guarded by individual entities. And who can blame them? Data and analytics are a hugely valuable tool in navigating this market dislocation.

Howden’s Nova platform provides this much-needed industry data and analytics access and capability. It draws on all publicly available historical data, is updated continually with new inputs and provides rapid analyses and comparisons of pricing, profit, claims and buyer behaviour across generic and specific insurance lines.

Naturally, we believe Nova can become an industry standard. But you don’t have to be as enthusiastic about Nova as we are to recognise that data is our industry’s greatest untapped resource.

Analytics provides the edge

Perfect decision-making is not possible, but with the right information and the right analytic tools, decisions improve. The direction of markets and likely longevity of market cycles – including the current one – can be better understood with accurate data and intelligent analysis.

Excess profits are usually generated by taking informed, often contrarian positions. The right information and analysis can identify these opportunities and ‘white spaces’ before the consensus catches up.

Benchmarking can be improved, especially outside of the homogeneity of the US yellow book. Identifying key metrics, such as how peer companies are actually performing in different markets, becomes straightforward with hundreds of data sources and near perfectly consistent financial models accessible through a digital platform.

Likewise, in volatile asset markets, counterparty credit becomes a critical issue. Data and analysis make counterparty risk assessments less of an art and more of a science. Cedants can upload their entire reinsurance panel to Nova and monitor it as information is updated.

These applications are just a taste of what is already possible. The potential uses are endless, and advances in machine learning and AI will unlock even more opportunities.

Charting a smoother course

The history of insurance is one of cycles, and that will not change. But data and analytics are becoming ever more essential to understanding how these cycles work and to identifying the challenges and opportunities they offer.

With Nova, the sector’s premier market insights platform, these opportunities can be seen in better focus.

David Flandro is head of analytics and Michelle To is head of business intelligence at Howden