International risk management technology and innovation firm ImageCat has launched a new product called Inhance. It believes that Inhance will help to plug the information gaps that expose insurers, reinsurers and ILS investors to unexpected catastrophe losses.
U.S. and London-based ImageCat has spent the last three years working with over 20 London market insurers to develop Inhance, which it describes as a ‘Powerful analytics and data platform that allows users to quickly identify incomplete or poor quality data and isolate high risk properties for further improvement and analysis.’
Gavin Lewis, commercial director for inhanceTM says that insurers and reinsurers face unacceptable levels of risk from natural catastrophes due to critical errors and omissions in their insurance and reinsurance portfolio’s property exposure data.
Clearly any such errors and omissions in the data behind portfolios of property catastrophe risk can have a knock-on effect for reinsurance, retrocession and of course the catastrophe bond and insurance-linked securities (ILS) market.
“Very significant risk factors, including the precise building location, its use and construction type, and rebuilding value, can be missing or inaccurate in the information an insurer holds. This can lead to unexpected losses and large uncertainties in catastrophe model output which the insurers use for capital allocation,” Lewis explained.
Lewis believes that Inhance has applications right the way through the insurance, reinsurance, retrocession chain, with exposure to inaccuracies possible at every step of the way. The Inhance tool also has applications outside of insurance, potentially helping property owners and businesses to better understand their possible exposures.
Lewis added; “Inhance can be used throughout the whole chain of risk management from property owner to securitised risk transfer. Like insurers, businesses with large, international property portfolios need tools to identify where the gaps and errors in the data they hold expose them to unacceptable risks from natural catastrophes.”
“These businesses may have incomplete or inaccurate data, particularly for property risks which have come through acquisitions of other companies. This means they will not have a complete picture of how they, their suppliers and their transport networks could be affected by a major catastrophic event.”
Inhance contains 500 global hazard layers and allows global property owners, insurers and reinsurers to view their sites and properties easily against a range of perils, including earthquake, wind, flood and sea level rise. This can give the user a more precise insight into the levels of exposure across their multinational portfolios.
Inhance has an interesting pricing model in that it offers a pay per use option for smaller businesses that do not require licensing, this also makes it easy to trial.
The Inhance software is web-based, accessed by the user in their browsers and allowing property portfolio information to be securely uploaded and then analysed against the range of perils included. Different facets of the dataset can be selected and zoomed in on for more granular analysis, equally specific factors can be excluded making analysis an easier task.
For the ILS and catastrophe bond market the benefits of such a tool are clear, it could give a much better view of the true exposures within a portfolio of risk which has been securitised or collateralized.
Gavin Lewis spoke with Artemis about the value that Inhance can bring to ILS market participants and capital market investors. Lewis said; “We understand that investors are often concerned about the underlying quality of data on the risks that they are assuming in a securitised insurance transaction, especially for indemnity based deals.”
Inhance can help the ILS market in a number of ways, said Lewis, commenting that it can deliver; “Assurance by the re/insurer that it has used Inhance to identify incomplete or incorrect data and map possible exposure to natural catastrophes will give investors more confidence that the exposures they are assuming in the securitised instruments match those which they are expecting.”
Another potential Inhance use-case for the ILS and cat bond market might be; “The issuer can use Inhance to provide reports for investors that will give them greater understanding of the exposures and assurance that the re/insurer has also managed those risks. Inhance includes preconfigured reports and heuristics so that (re)insurers can easily profile and segment their portfolios prior to placement.”
Inhance could even assist with the expansion of the ILS and cat bond market according to Lewis. He explained; “With more than 500 regional and global hazard layers, Inhance will support the extension of securitisation into territories where property and peril data is currently limited or non-modelled risks are included in the transaction. Inhance allows insurers to view their sites and properties easily against a range of perils, including earthquake and tsunami, windstorm, flood, and sea level rise. It will also support risk assessment for additional classes of insurance such as energy, fine art and specie, and cargo.”
Finally, Inhance can help post-event as well, which is another potential use-case particularly for ILS investors wanting to analyse an events impact against their investments. Lewis continued; “Users can quickly understand the impact of a catastrophe on their portfolio thanks to extensive post-event datasets provided through the work of our parent company ImageCat, which has responded to more than 40 major disasters worldwide, including the 2011 Japan tsunami; Haiti, Chile and Christchurch earthquakes, and major US hurricanes. We believe this could also be a useful facility for investors holding a basket of catastrophe related securities. Data for new catastrophic events will be made available within Inhance for users to rapidly assess the impact of each new event on their risk portfolios.”
Inhance is just the latest in a range of developments in risk analytics which promise to help the insurance, reinsurance and ILS markets to do business better and more safely, with a clearer understanding of the exposures they assume. Anything that helps to plug the gap in data which results in a difference between expected and actual losses will ultimately help to minimise basis risk in the business underwritten, that’s a positive for the entire re/insurance and catastrophe risk transfer market.
That can only benefit the ILS and catastrophe bond market, as tools like Inhance help insurers and reinsurers to provide more granular and accurate data on the risks underlying their ILS transactions, helping investors to make better and more informed investment decisions.