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Property risk: How modeling and risk analytics can solve four hard market challenges

Insights from the Outsmarting Uncertainty webinar series.

By John Merkovsky , Rachel Andvig , Peter Carter , Derrick Easton and Ken Giambagno | May 31, 2023

Modeling, risk analytics and more accurate property and business interruption valuations can help get more value from your property risk portfolio in tough conditions now and into the longer term.
Captive and insurance management solutions|Climate
Climate Risk and Resilience

Managing property risk today can be hugely challenging. Achieving better value may require you to adopt fresh thinking energized by modern, data-driven and proactive approaches.

We see opportunities for competitive advantage, even in a hard market. So, in this insight – based on perspectives from WTW’s Outsmarting Uncertainty webinar series – we offer four actionable perspectives on using data to get more from your property risk portfolio, both at an operational level at renewal, and with a view to influencing the long-term strategic success of the business.

Challenge 1: Property rates are volatile, hard to predict and control

Unlike in other lines – such as excess casualty, directors’ and officers’ and cyber where we’ve seen rates stabilizing – property rates are remaining volatile. Seasoned property brokers have shared with us how recent renewals represent some of the most challenging of their careers, with unpredictable rates and estimates often diverging significantly from actual costs.

The current conditions are being driven by a number of factors, including inflation coupled with persistent natural catastrophe losses. At the same time, recent losses have exposed the under-reporting of asset values.

Solution 1: Use data to switch your renewal stance from reactive to proactive

It’s time to shift from simply accepting the terms markets offer. Approaching renewals with data-defined understandings of your risks puts you in the driving seat of negotiations. Analytics can also put numbers against your organization’s risk tolerance and financial sensitivity to loss to better appreciate the levels of risk being retained and transferred.

In this way, risk analytics can give you a far clearer take on the risk/reward opportunity of assuming more risk. You might use analytics to understand the impact of changing arbitration limits, sub limits, alternative layer pricing, deductibles or higher limits, for example. What are the most efficient structures? Where are you best to retain risk and therefore present an alternative narrative to markets on your property risk?

Challenge 2: I’m being pushed to get more from the total cost of property risk in the hard market

In tougher economic cycles it’s likely every function across your organization is being asked to find savings and efficiencies. In a property risk market where rates are high and unlikely to come down soon, the pressure is on to challenge costs without creating shortfalls in areas such as property damage cover.

Solution 2: Use modeling to reveal optimization opportunities

Modeling can point to inefficiencies in the design of programs. For example, your property risk portfolio could include one location with a much higher total insurable value (TIV) or higher risk than the rest of the portfolio which could be driving the insurance cost for your entire portfolio.

Let’s imagine one location has a fairly high one in 100-year wind loss of $6M compared to other much lower risk locations. Modeling insights can demonstrate how this single, higher risk location is driving inefficient pricing across the portfolio.

Modeling can also define the path to more efficient property risk solutions, such as a separate policy or limit for locations with higher TIVs or ones at a higher risk of loss, or an alternative risk transfer solution that removes a specific risk from insurers’ pricing considerations for the benefit of pricing those property risks it makes more sense to retain.

When it comes to natural catastrophe cover, modeling can offer a clarified view on single perils and the impact of these on specific locations, moving away from blanket understandings that could lead to over insurance or inadequate coverage.

Individual natural catastrophe risks may also be a better fit with some insurers’ portfolios than others. Being positioned to drive nuanced conversations on natural catastrophe with a variety of insurers using data and modeling can ensure your cover is efficient overall.

Challenge 3: The business wants assurance on climate-related property risk management

Climate change is having an impact on many perils covered by property insurance, including perils like river flood and heat stress.

Solution 3: Use climate scenario modeling to define a robust property risk strategy

Understanding the impact of climate change on your property portfolio can not only help you determine the impact on insurance into the future, but also the impact on the organization’s strategy and resilience.

Modeling can allow you to assess the impact of different future climate scenarios, revealing the efficient property risk management programs. These might include potential investment in modification, disposing of assets in certain locations or renegotiating leases at keener prices due to the climate-related perils, to name just a few climate-related risk management moves.

These decisions not only impact property risk management for many years, but help set the organization’s strategic resilience in a warming world.

Challenge 4: Rising rebuild and reinstatement costs mean soaring costs at renewals

All industries have been impacted by COVID-19, supply chain disruptions and the Russia/Ukraine conflict which have increased the cost of materials and labor, inflated insured values and, following a loss event, lengthened restoration periods. This, alongside climate-driven catastrophes, has made property risk more difficult to insure leaving risk managers facing significant budgetary pressures.

Alongside this, insurers are scrutinizing how organizations are quantifying and resolving property and business interruption (BI) losses more closely, particularly where the loss claims/estimates are considerably greater than previously reported values and exposures.

Solution 4: Deploy analytics for valuations accuracy and keener value premiums

Insurers are using analytics to determine property rebuild values to decide property damage and BI rates. This means you need to use the same capabilities to take more control in renewal negotiations.

To determine your true BI exposure, your analysis should consider business continuity plans, disaster recovery plans, redundancies, interdependencies, available inventory and potential bottlenecks. Accurately measuring true exposures and values is critical to making informed decisions around appropriate levels of both BI and property damage coverage.

If you don’t give markets alternatives to their own default narrative on valuations, they will make assumptions that may not always reflect your property risk accurately. Using data to tell another story, one with greater clarity on your unique property risk portfolio can drive better outcomes at renewal and beyond.

For specialist perspectives on your property risk and BI valuations ahead of renewals, get in touch.


Head of Risk & Analytics and Global Large Account Strategy, WTW

Associate Director, WTW

Head of Climate Practice &
Head of Captive and Insurance Management Solutions,

Managing Director, Risk & Analytics (Alternative Risk Transfer Solutions)

Head of Global Forensic Accounting & Complex Claims Practice, WTW

Ken Giambagno on LinkedIn

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