The loss curve conversation brokers should be having with clients, but alas…

In my years as a head of risk and, more recently, insurance, I’ve come to cherish statistics and transparency over sales pitches and empty promises. The insurance sector, despite its vast potential for foresight, often leaves me yearning for a deeper connection to raw data. The dream? A world where insurance brokers initiate their discussions with me by bringing me the relevant industry and geography loss curve for the risk I am trying to place. Never has this happened. Not once.

The essence of the loss curve

During my CRO journey, I’ve often pondered the true essence of a loss curve. It’s more than a statistical representation; it’s a narrative of vulnerabilities, a tale of potential catastrophes, and a testament to preparedness. This curve, in its intricate design, encapsulates the probabilities of varied levels of losses, from those we can shrug off to those that keep us awake at night.

But sadly, these revealing curves often lurk in the shadows, unseen and unappreciated. Most brokers don’t know how to build them and the ones that do, do not have data readily available to answer my simple questions. Few have the data and the capability and try to sell it as add-on consulting. Normally I wouldn’t mind paying, but the product how it’s currently packaged is bad.

If you are a broker and reading this and thinking what is a loss curve and how does one calculate it, you are part of the problem and a big shingle in my role as a CRO.

RISK-ACADEMY’s Guide to the Insurance Buying Process

The problem with buying insurance 

Years of engaging with brokers have often led me down a familiar path. Their stories, peppered with broad sweeping generalisations, unverified claims and empty promises, carry an air of déjà vu. While these stories are fun for the first few times, they miss the facts, the understanding of nuances that only actual data can provide.

  • Complexity for clients: I’ve been told that delving into loss curves could lead to confusion. For some uneducated or incompetent risk managers, maybe. Anyone with the most basic probability theory knowledge will immediate figure out how to use it to calculate the fair cost of insurance and appropriate deductible levels. With the right guidance, this not so complex data could illuminate rather than befuddle.
  • The data dilemma: At times, I’ve heard whispers about the absence of robust data. But in this digital age, isn’t it time to harness technology and analytics to bridge this data gap? Most brokers on the planet have the data, they are just too lazy or ignorant to convert it into loss curves. I bet if someone did the analysis on the insurance claim it would become blindly obvious how cyber risk is not number 1, probably not even top 10.
  • Held by tradition: The chains of tradition have a tenacious grip. Established practices often eclipse innovative ideas, even when the latter might offer more value.

The unachievable dream

I have a dream that one day my conversation with brokers starts with a clear, unobstructed view into the raw data relevant to my risk and my industry. No more blah blah, just honest numbers that allow me to see EL, UL and cVaR for the industry of interest. And yes, I heard all the excuses under the sun, they are not true. It is actually super easy to share loss distribution without disclosing confidential client data. Any junior mathematician do this in seconds.

This dream, as vivid as it might be, needs more than just wishful thinking. It beckons a call to action:

  • Empowering brokers: I dream of brokers who don’t just sweet talk, but who educate and enlighten with data. But to do this, they must first be students themselves, imbibing the art of building and interpreting the loss curves.
  • A digital revolution: Our world pulsates with data. It’s time to harness this data deluge, to transform it into actionable insights and compelling narratives. EL, UL, cVaR should be available at the push of a button.
  • Engaging the client: We must remember that behind every policy is a person, a story, a dream. By fostering deeper client engagements, we can co-author stories of security and assurance. Yes, most clients will not get it initially, but the savings that come with the data will quickly educate the clients.

But wait, what if brokers only pretend to be serving client interests and are actually motivated by insurance companies to hide real losses and force the massive overpricing in the industry. Then it all makes sense. Who knew…

As I stand in the middle of yet another renewal, I can’t help but hope for a future where our dialogues echo with the insights of the loss curve, where brokers are not just facilitators, but offer actual industry insights. I estimate there is a 97% chance that this will always stay a dream.

By the way, RAW2023 teaches how to build loss curves.

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