Russell Group’s Suki Basi on the importance of forward-looking analysis in delivering outcome-based solutions.
In my article yesterday, I discussed how the complexity of today’s events is making it extremely difficult for organisations to understand their true exposures. Also, at the end of the article, I touched on what we call forward-looking analysis, which I will explore in greater detail today.
So, what does forward-looking analysis look like in practice?
Forward-looking statements are typically used in many organisations to predict future business conditions, and tend to be quantitative. For example, an organisation may predict their future earnings based on past earnings along with other metrics.
Russell’s definition of forward-looking analysis is both quantitative and qualitative. It is placing that single organisation and its subsidiaries into a landscape along with its peers and trading partners and using this as the basis on which to run a set of scenarios. From this scenario analysis, we can glean and understand the potential outcomes that could impact an organisation and its (re)insurers.
The benefits of such an approach are numerous and can feed into boardroom decisions regarding not just current but also future investment plans.
Speaking at a Russell-hosted panel on connected risk this summer, one panellist said such an approach can help insurers play a more strategic and tactical role in supporting an organisation. Rather than focusing on premiums and deductibles, insurers through forward-looking analysis can contribute to maintaining the financial viability of an organisation.
Forward-looking analysis also feeds into another big talking point among corporates and insurers, which is outcome-based solutions.
The messaging from previous Russell events and meetings with corporates and (re)insurers is that there is a disconnect between both sides over “perils” and “outcomes”. Corporates want their outcomes from an event covered, as this is what ultimately impacts them. For example, the reputational damage arising from a cyber attack. This, they say, is not offered by insurers, which are focused on “perils”. Consequently, many corporates are actively looking at alternative risk transfer options such as captives.
On the other hand, insurers will say that corporates do not give them enough data and information from which they can gain a holistic view of an organisation’s true exposure
For insurers, such an approach is highly beneficial, particularly at a time when reinsurance costs have risen. Having a better understanding of forward-looking exposure, along with peak accumulations and the effects of capital allocation, will steer reinsurers to achieving a more stable net position.
Ultimately, it is our belief that there is a desire among underwriters, including in marine hull and cargo, to leverage data analytics to develop more sophisticated analysis of their portfolios.
By doing this, they will be able to achieve forward-looking analysis, and in doing so take a step forward to providing outcome-based covers in the future.
Suki Basi is managing director at Russell Group