Sept. 11 Sparks Demands For Modeling

Reinsurance Editor

London

After Sept. 11, the insurance and reinsurance industries woke up to a riskier world and, hence, there has been an increased use of modeling to help assess these higher and more complex exposures.

There is a whole new set of issues regarding multiline exposure management, noted John Abraham, senior vice president of corporate marketing for Risk Management Solutions in Newark, Calif. “Companies are trying to get a much better handle on what their exposures are on the ground,” he said.

“Many of them had a very good idea of where their property exposures were because theyve been doing traditional cat modeling on natural hazards,” Mr. Abraham said. However, there was less clarity in how those exposures correlated with other exposures, such as workers compensation and other lines of business, which has been flagged by the events of Sept. 11, he added.

Whenever these big events happen, there comes a realization that the rules that were applied prior to the event were not adequate, and “you need more sophistication in quantifying the risk,” said Uday Virkud, senior vice president for AIR Worldwide Corp., the Boston-based modeling company.

“It came to the forefront that there were all these clashes [of coverage] in areas such as property, workers comp, life–all lines where a company could have exposures that could be concentrated at a given location,” he said.

While a man-made catastrophe such as terrorism had the potential for such clash problems, “its one of those things, until something happens, nobody was thinking much about it,” he said.

“Post-9/11, people are generally more careful now in how they look at risk,” said Dennis Kuzak, senior vice president of EQECAT, the Oakland, Calif.-based modeling firm.

Further, he said, both Sept. 11 and Enron have highlighted to investors of insurance companies whether insurers have “a good handle on all the policies theyre writing,” he said. “Its not a question of fraud; its a question of competency and credibility.”

He noted that some of his clients have asked EQECAT to do risk analyses because of Enron. “If Im an insurer and I write a bunch of lines of business, and Im publicly traded, I want to be able to go to my investors and say, Here are lines of business we write, here are our underwriting standards, and here is how we manage this risk,” Mr. Kuzak said.

Insurers and reinsurers are getting their hands around these exposures by employing modeling companies, and one of the principal areas being analyzed is workers comp.

For workers comp, its important to ascertain how many people are working in a building, the shifts they work, as well as its construction and type of occupancy, Mr. Virkud explained. Prior to Sept. 11, he said, most companies did not collect that level of data, although data collection is very sophisticated in the property area.

“Most of the companies Ive spoken to have started collecting the information at a very high level of detail,” he said. “It depends on how quickly theyre going to be able to implement it, but I think most companies have put a very high priority on that effort.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 2, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Sept. 11 Sparks Demands For Modeling

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