Despite the increasing uncertainty with regards to the financial hit to industries, Russell Group have modelled the exposure for companies and countries. In the first of these articles, we take a look at the impact on shipping.
Reactions: Specialty Risk Correlations are Accumulating
07 October 2016 | Blog Post
Russell Group Managing Director Suki Basi was interviewed in Reactions Magazine Monte Carlo last month daily and we thought was worth reprinting some of that feature. Risk correlations are building within and between some specialty lines, which might not have been picked up by some underwriters. Casualty classes, marine and energy and other specialty lines are receiving exposure crossover with other risks, such as in the natural catastrophe space, cyber and political violence, he suggested.
“People tend to be very silo focused. Knowledge of exposures drops off between classes. Look at cyber. An aviation underwriter will assume third party risks for an airline, while two desks along a cyber underwriting team may have written an airline cyber policy,” he said.
Political violence and aviation underwriters might be looking at the same risks, too, he suggested. “Coverage might be written at a reduced by a political violence underwriting team after an airline underwriting team rejected the risk,” said Basi. “People need to come out of their silos and look at business across classes.” Basi described an aviation and political violence example of Tripoli airport in Libya in 2014, when a number of airliners were written off after fighting between insurgents and government forces, causing something in the region of $800m in losses.
Pharmaceutical losses can come from cargo loss or damage in shipping containers, he noted, pointing to last year’s Tianjin port explosion in China. “The cargo underwriter might not have a detailed of the cargoes being shipped,” he said to Reactions.
The need for a more joined up approach to managing the “cross-pollination” of underwriting exposures has some parallels with Enterprise Risk Management (ERM), although this is typically done at a higher level than by underwriting desks.
“Rather than a top down approach, this is bottom up: better ERM at the underwriting risk level. People need to realise their risks simply aren’t siloed any more, which means they’re likely to be under-reserving for severe events,” Basi said. “There’s a whole raft of events outside your class of business, but which can impact your class of business, which from an exposure management perspective you should be aware about. Silos feed into ERM, with people adding A to B, but it doesn’t work like that,” he added.