Insurers are often overwhelmed when managing their Total insurable value (TIV) aggregation. This issue leads insurers to accumulate excessive exposure in concentrated areas. Legacy software was not designed to capture this exposure, and manual processes are not consistently updated. An insurance company could be lacking protection to risk from catastrophes far beyond their means. Reinsurance may help to mitigate this exposure however it comes at great expense. The purchase of catastrophe (CAT) reinsurance is expensive in the current environment.
What Can I do?
The first step in managing this aggregation is to make sure you have accurate Insured to Value (ITV) limits on your policies. By accurately reflecting values in your book of business, you have confidence when modeling data. This confidence helps you to understand the risk associated with your insurance company and to provide accurate information to potential reinsurance partners.
Great, my values are correct, now what?
Once the values are correct, you can model your book to understand your exposure. CAT Modeling can be completed on your book to provide this perspective. Actuaries and modeling companies will review your exposure and associated losses to provide projections based on different storm scenarios. In the Midwest, convective storms and tornados tend to have the most impact, on the coast, you see hurricanes having more impact. Models will provide a prediction of losses based on different storm scenarios often ranging from a 1 in 10-, 100-, 250-, 500-, and 1,000-year storm. Depending on your risk appetite, most companies then purchase reinsurance up to those limits. Many purchase to a 1 in 100 or a 1 in 250 storm. Look to our next blog discussing the “1-in-100 year event.”
Managing TIV Aggregation
Values are correct, I know what my model says, how do I mitigate my risk? The concentration of values plays a major role in your business. The closer your insureds are to each other, the more likely a singular storm will have a major impact. This issue is a major flaw to the small mutual community who tends to write risks in a concentrated area. If I write $50,000,000 of exposure in a one-mile concentric circle, I have more CAT exposure than if I write that same $50,000,000 of risk in a larger area.
There are many tools available to help you review exposure and pin down where exposure might be too great in a concentrated area. Mapping of exposures can provide great insight. The tools allow for you to look at your exposure in different areas such as county, zip code, or even concentric circles. We like to look at our exposure in 1-mile, 3-mile, 10-mile, and 25-Mile concentric circles. We can then set guidelines for where we write to mitigate having too much exposure in any one area.
Closely monitoring and managing your TIV Aggregates can help to mitigate exposure, reduce reinsurance costs and protect your organization for years to come. We are happy to answer any questions you have, please contact us at…
About Mutual Underwriters
Mutual Underwriters is an insurance administrative services and managing general agency headquartered in Carmel, Indiana. The company mission is to provide management expertise, product development, underwriting expertise, and strategic advice to small insurance companies, Mid-size insurance carriers, MGAs, and Program administrators. Our objective is to help these organizations modernize and thrive.