Verisk exploring large industrial and commercial insured loss index

Verisk Analytics is actively exploring the development of a new index to facilitate large industrial loss risk transfer, which would specifically be focused on industrial and commercial fire and explosion loss events.

Through a joint effort between the new ISO reinsurance initiative and Verisk Analytics, market research is being conducted in conjunction with the exploration of the feasibility of any large industrial loss index which would be made available for data and risk transfer purposes.

Verisk already has its PCS catastrophe series loss data and index services, which are widely used in the insurance, reinsurance, insurance-linked securities (ILS) and catastrophe bond markets. The organisation has also been working on an index for marine and energy loss data, as it seeks to bring new and innovative products to the ILS and reinsurance market.

The industrial and commercial coverage arena is an area where ILS players are already beginning to make some headway, with a number of collateralized markets providing some capacity on large commercial or facultative risk reinsurance programmes. ISO found that there is potential demand for an index to serve this segment, which could help ILS capital to further penetrate it.

Tom Johansmeyer, AVP of Reinsurance Services at ISO, explained to Artemis; “After interviewing a few dozen reinsurance and ILS clients, one need clearly rose to the top: an index for large commercial and industrial losses. We’re collaborating actively with the market to develop an index that is useful and usable. Our strategy in this space is to follow the needs of our clients, and the results should benefit the market as a whole.”

As well as covering loss data for large industrial and commercial accidents and catastrophes, the initiative will also look to put the exposure side of the equation to work as well, an area Verisk has ample data.

The initiative will look to put the exposure data contained within the ProMetrix® database, operated by Verisk Insurance Solutions – Commercial Property, to use and hopes to offer an exposure-based index down to state level.

ProMetrix is the largest source of commercial property insurance data and analytics in the U.S., with both construction and risk information on over 3.5m commercial properties and more than 6m businesses.

Verisk explains:

Our property information is field-verified by a nationwide team of more than 550 inspectors and provides physical building characteristics and 135 categories of occupancy, including sales volume and number of employees. We use the data to develop rating analytics and hazard index values to support underwriting decisions and operational strategies. We provide metrics that help our clients assess, measure, and manage the risk presented by insurers of commercial properties. The information is accessed through a secure web portal or with a direct host-to-host connection through an application program interface (API).

ISO said that it is evaluating its ability to match insurance claim data against the ProMetrix exposure database in order to develop a functioning loss index. Such an index could be used as a trigger within transactions, or the underlying data for helping re/insurers to manage and understand exposures and losses.

Joe Palmer, VP of Commercial Lines Actuarial at ISO, explained how the new service could benefit the ILS market; “Access to new forms of risk – with attendant analytical capabilities – can be crucial to the continued growth of the insurance-linked securities market. Working with our reinsurance and ILS clients to find new ways to use ISO data, we look forward to helping facilitate better risk and capital management along the risk supply chain.”

Anil Vasagiri, VP for Commercial Property at Verisk Insurance Solutions, added; “Large commercial property losses tend not to be captured by PCS, given the smaller concentration of insurers and insureds affected. We’ve listened to our reinsurance and ILS clients on this issue, particularly their need for an index to simplify the risk-transfer process. Our plan is to use ProMetrix and ISO claims data to help open new retrocessional opportunities in the market.”

If successful, the index will be used to assist insurers and reinsurers to transfer man-made industrial loss risk from events that normally would not qualify as PCS-designated catastrophe events, due to the fact they can lack sufficient numbers of insurers and insureds affected.

This interesting initiative would benefit both those seeking coverage, as well as ILS investors seeking to provide capacity and gain exposure to these risks. These risks, while beginning to feature in the ILS space a little, could provide an opportunity for ILS to expand its remit and a functioning index service could help to accelerate this.