Overcoming the challenge of cross-class clash

June 16, 2021 / 4 min read

As (re)insurance companies expand their offerings across diverse lines of business, they also increase their risk of loss accumulation due to cross-class clash. Cross-class clash refers to scenarios when a single event, either due to its location or cause, leads to more than one claim under different classes of business potentially threatening the solvency of the (re)insurance company. Identifying the potential loss across impacted lines of business for any event that could trigger (re)insurance claims is a significant challenge for many large (re)insurance companies; and the larger the organization, the bigger the obstacle to collecting the data needed to even begin to analyze these scenarios.

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"During extreme events, Enterprise Exposure Manager offers the ability to quickly understand the potential risk to your exposure across all of your business units and lines of business."

Typhoon Hagibis

There was a significant example of cross-class clash in October 2019 when Typhoon Hagibis was bearing down on the greater Tokyo area. A global, multi-line insurer found themselves with an unanticipated clash. The storm’s high winds and record precipitation caused billions in insured property losses, and this syndicate realized the event cancellation policy it had written for the Rugby World Cup was going to cost tens of millions more to cover the cancellation of England's match with France and New Zealand's contest with Italy. Typhoon Hagibis has caused close to USD 5.5 billion in insured loss claims, with more claims still to be processed.¹

Beirut Explosion

In August 2020, a massive explosion rocked the port of Beirut, causing significant damage and killing hundreds. Triggered by a large amount of ammonium nitrate warehoused in the port, the blast was equivalent to the detonation of about 2 million lbs. of TNT and was one of the most powerful non-nuclear blasts in history. The port and about half of the city of Beirut experienced damage, much of it catastrophic. Insured loss estimates for the explosion are estimated to be between USD 1 and 1.5 billion, with claims stemming from commercial lines, marine, cargo, and hull.² With the explosion occurring directly in the port, numerous warehouses and buildings were leveled, while marine vessels were sunk. Although the insurance impacts were not as severe as Typhoon Hagibis, scenarios such as the Beirut explosion have the potential to expose clashes across numerous lines of business.

Colonial Pipeline

Most recently, the Colonial Pipeline company experienced a multi-day outage resulting from a cyber-attack. Starting on May 7, the company was unable to operate, shutting down 5,500 miles of pipeline, and obstructing gas supply along the U.S. East Coast. The ransomware attack ultimately led to several days of business interruption for numerous impacted entities, and the ransom payment of USD 4.4 million. Recent reports claim that Colonial did have cyber insurance, but it’s still unclear how this event may cause insurance claims across cyber, business interruption, third-party liability, and other classes of business.

Managing Risk from Cross-Class Clash

Understanding how cross-class clash scenarios can impact a (re)insurance company requires a holistic analysis of all the risk held across impacted lines of business; however, most organizations don’t have an easy method for accessing the data stored in different locations and within different subsidiaries. Compiling this amount of complex data is not only a challenge in terms of where it lives, but how large it is. Without the ability to see current portfolios across all lines of business, it is often next to impossible for an organization to manage its risk appetite or understand its risk of cross-class clash.

This summer, Verisk will introduce Enterprise Exposure Manager™, a scalable, cloud-native solution that enables (re)insurers to evaluate enterprise-wide risk across billions of locations. Developed collaboratively across Verisk, Enterprise Exposure Manager integrates Sequel’s market-leading exposure management capabilities with AIR’s best-in-class analytics and Analyze Re’s high-performing modeling engine to bring you a brand-new, comprehensive solution to empower enterprise-level decision-making. Together, we offer a continuous end-to-end workflow that brings data across all lines of business into a central repository. Enterprise Exposure Manager seamlessly consumes data from AIR’s Touchstone® and Touchstone Re™ software solutions, easily importing property data without the need for manual data entry. Sequel Impact data can be imported directly into Touchstone by way of the integration introduced in 2020, allowing Enterprise Exposure Manager to capture data across all lines of business. In the future, organizations will also be able to use this product to explore how their risk spreads across different classes of business and identify their cross-class clash risk in both reporting and in the case of a real-time event.