POLICY - May 2019

POL I CY The Israeli Insurance , Pension&FinanceNewspaper 34 Tel Aviv Re 2019 How many times have you heard the assumption “We are assuming the past as a guide for modelling the future”? Analysing motor portfolios has gone through a transformation in the last decade. I worked for XLRe throughout the noughties and we led the way in analysis of long tail lines of business. The information and data for pricing motor treaties was in abundance and we wereusinghistoricclaimsandexposures to model portfolios with significant success. The product was seen as fairly homogenous compared to other classes and we had good data, models and expertise in the area. We were making sensible actuarial assumptions around inflation, development of claims and change in business mix to come up with results that had a high degree of confidence. I had a global role for XL Re, working mainly in London but had the opportunity to live in a few different places around the world. From an early point in my career this helped me understand different cultures, business profiles and practices which helps in many areas of your working life, although one doesn’t necessarily realise or appreciate this at the time. I joined Guy Carpenter in 2010 and currently head up the actuarial team in London responsible for the analytics and output for UK, Israel and MEA territories. Working across a wide range of territories helps in using best in class solutions across territories and lines of business. We see common threads and issues between our clients and have an extensive wealth of information built over years to help analyse and solve problems. Post 2012 the whole legislative, economic and regulatory landscape has made motor analytics increasingly interesting and one of the most actuarially intensive lines of business. There are a number of reasons and challenges for this which include, but are not limited to: • Following the low interest rate environment around the world has meant that discount rates used to compensate claimants fairly have been declining significantly leading to claims increasing significantly. Furthermore, where a large proportion of the claim is linked to earnings, claims have been increasing by multiples. We have seen this under theWinograd review in Israel where, even though a change has not happened, an anticipation of bringing discount rates closer to yield curves have distorted claim reserves. • There has been social awareness of structured and periodic settlements which, while more socially equitable, place a huge capital strain on insurance companies. They introduce mortality, investment and inflation risks to general insurers balance sheets which were not present before. • Soft tissue reforms where some jurisdictions are introducing tariffs for whiplash and small claims have changed the composition of smaller claims with legal expenses attached. • Increase in pace in technology specifically LIDAR and sensor technology within motor personal and commercial vehicles has led to a change in the composition of total losses and, whilst frequency of road accidents have been declining, severity has been increasing. Existing issues such as large third party injury claims are still present and new risks have been introduced such as accumulation of claims and cyber related risks. Motor manufacturers are investing heavily in autonomous vehicles which will move the liability from motor lines to product lines. Although this is in the future the rapid innovation of autonomous features cannot be ignored. • Enrichment of data through telematics and move to interventionist approach from insurers has allowed insurance companies to enhance pricing precision and differentiate themselves through rating algorithms focussing on segments for which they have an appetite. It also allows companies that mine the information carefully to detect fraud / misrepresentation. Technology is also prevalent in back office processes most notably helping speed up the claims processes. Accordingly, when analysing motor portfolios, the pertinent assumption about the past being a good guide to the future is now redundant. The big challenge is how to differentiate clients in this environment. We use a three pronged approach: Firstly we spend significant time ensuring we understand the client and the makeup and shifts in the portfolio. Having a local Israeli presence backed with our centre of excellence in London gives our clients a combined local and global perspective. Secondly, we capture an extensive repository of data and store in a consistent format. We use our database containing all this information including claims and exposures to help formulate market trends and benchmarks. For example, we have formulated claim uplifts at different discount rates when the UK discount rate moved from 2.5% to-0.75%. Wewereable toadviseclients on the changes to their claims reserves and impact on reinsurance treaties. We use these benchmark uplift curves with the appropriate modifications to give a view if the Winograd discount rate moved from the current 3%. Lastly, we analyse everything on a probabilistic basis by thinking about distributions around inputs which helps to provide ranges to outputs. We liaise with our clients to refine assumptions and talk through the likely outcomes and scenarios. Ultimately, our job is to help our clients grow, manage capital and reduce volatility. Not being able to use the past is daunting from a purely analytical viewpoint but these changes are all for the greater good. As a result, we have to change our mind-set, not only to use the past as a guide to the future but also to augment the new world characteristics with our collective local and global expertise to understand how our businesses will change. By Amit Parmar, head of EMEA Analytics at Guy Carpenter / RE Solutions Driving change through Analytics