Enterprise Risk Management Technology Guide 2023

Moody’s: Decode risks and unlock opportunities

Colin Holmes: How would you describe Moody’s strategy and approach for the insurance industry? 

Colin HolmesInstitutions the world over are dealing with a risk landscape that is more complex and dynamic than ever before. New risks are emerging, and existing risks are changing. At the same time, our ever more connected world means risks do not exist in isolation – rather, they interact and combine – with far-reaching, and often unforeseen, consequences.  

The insurance industry has a critical role to play in addressing this challenge. New threats such as climate change or cyber offer opportunities to innovate and serve customers. However, historical loss-experience may be limited, or irrelevant, requiring different approaches to assessing risk, and regulators are paying close attention to how these perils are managed.

The industry is also under pressure from many directions, with inflation remaining high, capital availability tightened, and compliance and reporting requirements continuing to grow.   

Risk analytics and insights provide the route to success in this landscape. Insurers are having to explore new data sets and integrate risk insights across portfolios to identify opportunities and risk hotspots, all at unparalleled speed and efficiency.  

Having brought together Moody’s Analytics and RMS, we are uniquely placed to assist the industry with this challenge, through the breadth of insight we provide by combining unique datasets, cloud-based platforms, and industry-leading risk models.  

Colin Holmes: How is the insurance industry modernising its financial and risk management?

Insurers are aiming to leverage new risk insights and integrate them into their business by making informed decisions and adopting the latest technologies, such as cloud platforms, machine learning and AI. 

They seek to balance their technology investments to achieve multiple goals, including enhancing customer service, improving efficiency and agility, and building sustainable and profitable businesses for the future. 

Customer-facing systems have generally already moved to the cloud and digital platforms, but insurers now recognise the importance of migrating portfolio-level management and risk analytics to the cloud. 

For instance, over a hundred Moody's RMS clients are utilising the Intelligent Risk Platform to model millions of customer properties daily. Overall, insurers are pursuing pragmatic investments that can seamlessly integrate with their existing systems. 

Mike Steel: Where are insurers at regarding understanding the implications of climate change?

Michael SteelMoody’s RMS and our insurance clients have been firmly in the business of understanding climate and associated risks of extreme events. We are experts on climate and its impact. Our clients want to know how climate change has already impacted losses and their portfolios – whether they are pricing right, have enough capital, can satisfy their regulators and stakeholders, etc.

They also want to understand how the future may unfold, in the near-, mid-, and long-term future, understanding what losses could look like under different climate scenarios. And, beyond the obvious challenge of property portfolios, insurers must manage a far broader range of climate-related risks, across different product lines including life and health, as well as asset portfolio risks.  

Bringing together RMS with Moody’s Analytics expands our pool of expertise to cover not only climate, but also economics, carbon accounting, asset and credit risk, to name a few – enabling us to help insurers address that broader set of challenges.

Mike Steel: What is sustainable underwriting?

Sustainable underwriting involves collaboration between insured parties, insurers, and other stakeholders to address rising risks, such as those associated with climate change. It is therefore important to fully understand current and future risks, including the impact of mitigation measures.

Risk modelling, such as climate-conditioned models, can help establish a baseline and predict future risks under different carbon emission scenarios. Insured parties can benefit from demonstrating their efforts to reduce risk and align with broader climate change goals.

Insurers can use tools like carbon emissions to assess the sustainability of insured parties and incorporate these into their risk management and pricing strategies. Recognising and rewarding mitigation and carbon reduction efforts can contribute to a sustainable world and long-term business viability.