Powerful digital solutions to manage risks of the modern world
Bloomberg Professional Services
The world is a riskier place than it was even a decade ago. Climate change, market volatility, economic instability and geopolitical tensions are all intensifying, all of which will likely have a significant impact on people, companies and property.
This has created new challenges for the insurance industry, which provides the cover to mitigate the financial costs of those risks. Its ability to assess the severity of these risks will not only impact how insurers serve their policy holders, but also how they allocate their premiums to investments, and deliver returns to their investors.
New technologies are helping insurers assess the changing risk environment, but for many, the cost and infrastructural requirements of putting these innovations in place can be overwhelming   At times like these, a trusted data and risk technology partner will be invaluable in meeting these challenges.
Emerging risks
The insurance industry has changed enormously over the years, forcing insurers to reshape their approaches to managing emerging risks.
The impacts of climate change can be seen across the globe, with ever-more extreme weather incidents like torrential rain, resulting in flooding, landslides and other events causing greater levels of damage with each passing year. This year is projected to be no different with the return of the La Nina weather phenomenon predicted to bring devastating hurricanes to the US. These circumstances present risks for insurers whose property and casualty lines see elevated claim levels, while posing unique threats to their investments.
In another area, cybercrime, particularly ransomware, is also on the rise. Clients of multi-line insurers increasingly require cyber-risk coverage. This brings challenges to the very definition of insurable events, and can carry the potential for outsized insurance losses, posing significant new underwriting challenges.
Even the life insurance space is having to cope with novel challenges, largely brought on by the Covid-19 pandemic as sustained mortality rates in some markets continue to exert pressure on insurers.
Along with emerging risks, long-standing hazards that were assumed to be confined to the past have reasserted themselves in recent years. Geopolitical tensions have increased in Europe, and an escalation of international trade disputes as the forces of globalization are forced into retreat limiting where insurers can underwrite business and invest.
Punishing impact
The emergence of new risk and widening of existing risks has resulted in the insurance industry experiencing losses of more than $100 billion over the past four years on natural catastrophes alone. It has also become trickier for insurers to manage their balance sheet as they look at newer ways to conduct Asset-Liability Management (ALM).
These pressures have complicated insurers’ investment operations as market and rates volatility have impacted the valuations of the assets they hold.
Further complicating matters, some insurers face actuarial risks from legacy fragmented technology setups to take advantage of new risk management systems.
While higher interest rates have mitigated some of their challenges, insurers continue to be vigilant toward the next emerging crisis that may bring lower rates and compound some of their challenges.
Powerful solutions
In response to these challenges, insurers have made strenuous efforts to rebalance their balance sheets to reflect the new reality. Opportunities to invest in safer assets due to higher interest rates present an opportunity for insurers to prepare for the new normal.
They have substantially increased their allocations to alternative assets, especially private debt, private equity, infrastructure and real estate.
Insurers have also managed to reduce interest rate risks and volatility by carefully matching assets and liability cash flows to asset durations.
While many of the measures taken come from historical risk mitigation playbooks, insurers can now take advantage of powerful digital technologies to boost their risk and investment operations.
Within Bloomberg’s comprehensive suite of buy-side data, risk analytics and tools, insurers can empower and streamline their total operations.
Clients can utilize strategic asset allocation workflows to build robust portfolio management, supported by advanced risk management and ALM models, and carry out reporting and surveillance for regulatory obligations.
Importantly, insurers can monitor, analyze and address their entire balance sheet, including their liabilities, through Bloomberg’s ALM solutions, full revaluation and factor-based multi-asset risk models and benchmarks.
As with all Bloomberg products, these capabilities are enriched with industry-leading data sets that can feed into firms’ own systems via rapid API-based connectivity.
Bloomberg brings together the tools and functionality that enables insurers to take a systematic look at their firm-wide risk profile and provide the information needed to ensure their risk management committees make the most accurate decisions possible.