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Welcome to our Monthly Newsletter – January 2009

“We hope that 2008 has been a good year and that 2009 will be at least the same, if not better.” George Worsley, Director

An Established and Successful Force in International Insurance

Worldwide Risk Solutions is a U.K. based commercial organisation which has the sole objective of facilitating global business strategies and business development in the international insurance industry. For more information about us, please go to www.worldwiderisksolutions.com.

What Is Going On Out There?

One of the many strange characteristics of the insurance industry is that the busiest period for renewing business coincides with the time when many of the leading market players are caught up in business- and family-related social activities and not available for urgent consultation. Over the years this has led, however, to another hallmark of the industry: creativity. When confronted with deadlines and seemingly nowhere to turn, brokers and underwriters nearly always come up with acceptable solutions to their clients’ needs. Taking London as an example, in December we have seen some major names being downgraded while others enhance their capacity. This helps the placement of a lot of important business at short notice. We keep you abreast of developments like these through our Talks Around the Bazaar.  

We continue our Spotlight series, helping you understand the way different markets around the world operate, so that those of you who do business there can feel more “at home abroad.” Different does not need to mean difficult but knowledge of the needs and characteristics of specific geographic markets is an advantage to those who are active in the global economy. This helps avoid misunderstandings and unfulfilled expectations. If you would like to discuss your international strategies with us, please contact us. Details are below.

Data Quality

At all times during the negotiation for insurance cover, risk information is imperative, but certainly when there is a rush, as referred to above, when brokers and underwriters are being torn in many directions, the quality of information can make or break a deal. What follows is a short discussion on this subject.

With the correct tools, an instruction manual and enough time, most people could manage to change the oil in their car. But most of us choose not to. Faced with a portfolio of property locations suspected of containing erroneous information, it is tempting to believe that finding and fixing the problems is a trivial exercise, and possibly not even necessary. But data quality, once considered unimportant, has now become a key driver in pricing risk and increasingly is seen by rating agencies as a proxy for the effectiveness of management controls (if it can’t be measured, it can’t be managed). Improving data quality has a direct impact on catastrophe model loss output, and can impact insurance and reinsurance costs by many millions of dollars.

Analysts working at insurance and reinsurance companies are smart.  No doubt that with enough time, they could find many of the instances of wrong data. Key in a few commands to Microsoft Access and it is fairly easy to find the gaps in a portfolio. But what should be done about the missing data? Ignore it? Guess? Go back to the original source? The latter is rarely an option; guessing can be worse than ignoring the problem, but to ignore it means underestimating the loss potential. A search on Google may reveal a photograph of the building in question and support an educated guess at what it is made of, where it is and what it is worth, but is hardly practical for more than one or two buildings.

And what about data which is complete, but wrong?  It doesn’t take a degree in civil engineering to know that a 73-storey hotel in downtown Atlanta recorded as “masonry construction” has been wrongly coded.  But the average analyst looks at tens of thousands of locations a week, and is under a tight deadline to provide modelled loss assessments. Trawling through a portfolio searching for anomalies is a full time and onerous job, and many instances of wrong coding will still be missed (“steel frame” construction” may seem similar to “light metal” but is far less vulnerable to hurricane damage).

The human brain is excellent at noticing discrepancies in visual patterns, and in using past experience to apply heuristics, or rules of thumb, to know where to look for problems. We can sense when something doesn’t feel right, without always knowing exactly why.  But we struggle with data when presented as raw numbers, particularly on the scale routinely exchanged between insurers, brokers and reinsurers today. Computers, on the other hand, are very good at processing large amounts of data, but need to be trained to look for specific errors or potential.  Properly designed, automated analyses using finely crafted heuristics can point out suspicious information which needs further investigation.

There is still the challenge of how to replace information which appears wrong or is missing. What is needed is a reliable, independent source of property information which can be accessed automatically whenever suspicious building data is identified in order to provide credible alternatives to occupancy type, construction, height or value.

A consistent and credible index of data quality which can be split into its parts enables an analyst to understand the worst problems which need to be solved in order to improve the quality of a portfolio. For example, knowing the exact street address is crucial for a building located on the coast of Florida but is of limited value for a similar building in North Dakota. Such an index also helps in the communication of data quality between different parties.

Computing analytics will never - and should never - totally replace human intuition. Used appropriately, they can ensure resources are leveraged much more effectively on higher value activities.

In preparing this SPOTLIGHT article we have received invaluable assistance from Risk Management Solutions – RMS – in London (www.rms.com) for which we are grateful.

If you would like Worldwide Risk Solutions to conduct an economic, business and insurance survey of any international markets please contact us – Details below.

Worldwide Risk Solutions has access to a wide client base of internationally oriented organisations. Why not utilise this knowledge and experience? We can conduct a swift appraisal of your global activities or answer any questions you may have about international developments. Call +44 (0)1444 450 919 or send us an e-mail and we will respond immediately. And should you be passing through London, please let us know.

In our next Spotlight article we will be looking at the world of valuation, valuation-related advisory services for business, financial, legal or tax purposes as well as valuations for solvency or fairness opinions, financial or tax reporting and compliance. In light of some of the notes in our Bazaar, this will make interesting reading. For more information about any of the items discussed in the current or previous issues of WoRdS, please see our Contact Details:

George Worsley, Director
Worldwide Risk Solutions
Telephone +44 (0)1444 450 919 Mobile: +44 (0)7968 191 511
E-mail info@worldwiderisksolutions.com

Talk Around the Bazaar

  • The insurance world is not waiting for the European Union to make up its mind about Turkey. Yet another major carrier has declared Turkey to be a core growth region: Ergo. Following Groupama and Zurich, Ergo is well-positioned to benefit from changes within its own organisation and get into the top three companies in 2009. For more information, go to www.ergo.com, http://en.wikipedia.org/wiki/Turkey and also this oecd.org link  
  • Profitable underwriting has enabled QBE to acquire four underwriting agencies which will help grow their portfolio of U.S. dollar and European business. Check their website, http://group.qbe.com/About-QBE/Insurance.html 
  • AIG is one of the first companies who will be offering Shariah compliant products in the U.S.A. More Info Here...
  • Following changes to its captive legislation, Malta has seen very positive growth as a financial centre for European business. Although not the same size as some of the traditional captive havens to the west of the Atlantic Ocean, Malta is becoming an attractive alternative for Europeans to establish captive companies and captive managers. For more information, please check their website, www.mfsa.com.mt 
  • With more and more insurance business being conducted across borders, there has been greater cooperation between insurance supervisors and tax authorities. Around the globe, there is not much more inconsistent than regulations on insurance, admitted/non-admitted, premium tax and taxation on claims payments made from abroad. There has not been the same collaboration amongst the organisations representing those who pay insurance premium tax as there has been amongst those monitoring compliance and collecting taxes. There are calls to redress this. For those seeking more guidance, go to TMF’s website
  • An example of collaboration is the recently announced agreement between the New York State Insurance Department and the French regulator, Autorité de Contrôle des Assurances et des Mutuelles. See the NYSID website www.ins.state.ny.us/press/2008/p0812021.htm
  • A good article discussing implications of admitted, non-admitted and more can be found on the website of ISN under www.isn-inc.com/news/news.aspx?nid=692&cid=13  
  • 2008 has been an exciting one for Benfield whose reports on events affecting the worldwide insurance marketplace must figure amongst the best around. Their latest quarterly issues are right up there and can be accessed at this Benfield Group pdf link and also by downloading a PDF at this weblink 
  • Did you know that only 8% of Thailand’s 20 million homes have household insurance? Read more at www.bangkokpost.com/241108_
    and if you want to learn more about the very informative Bangkok Post, see also http://en.wikipedia.org/wiki/Bangkok_Post
  • Another good English language publication in Asia is the Việtnam News and their article on Health Insurance gives a good insight into future developments in that arena, http://vietnamnews.vnagency.com.vn/
  • Eight years after purchasing the specialty insurer Hartford Steam Boiler, AIG has sold it to Munich Re. See here: 2008 press release for December 22
  • There are many associations which provide useful information about insurance around the globe. A good list of resources is in the website of the International Insurance Institute, www.iii.org/international/resources
  • Like us, many of our readers have spent time shaking their heads at poor Christmas Cracker jokes and other trivial information. We probably all guessed that Just Married Spiders are Newly Webs but here is a better selection: www.isn-inc.com/news/news.aspx?nid=692&cid=13
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    We are currently discussing projects in the following markets and are regularly being asked to attend the annual conferences and meetings of the major networks:

    • Australia
    • Bulgaria
    • Canada
    • Denmark
    • Finland
    • France
    • Germany
    • Ireland
    • Italy
    • Netherlands
    • Norway
    • Poland
    • Portugal
    • Spain
    • Sweden
    • United Kingdom
    • U.A.E.
    • U.S.A.

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    We continue to work with a growing number of networks to improve and expand their international capabilities.  If you have not already spoken to us about expanding your international markets, now might be the right time for us to conduct a feasibility study. For more information, please see the contact details below.

    What Clients Say

    “Worldwide Risk Solutions has helped us make the right contacts with market investigations for our next round of growth”

    “We rely on Worldwide Risk Solutions to know the key people”

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    Worldwide Risk Solutions LLP
    20 Blunts Wood Road
    Haywards Heath
    West Sussex
    RH16 1NB, England

    Telephone: +44 (0)1444 450 919
    Mobile: +44 (0)7968 191 511


    Skype Name: georgeworsley

    Information appearing in WoRdS is checked for technical accuracy but is not intended to provide a basis of knowledge upon which advice can be given. Worldwide Risk Solutions accepts no responsibility for any loss occasioned to any person acting or refraining from action as a result of the material included in this newsletter.