Milliman: Solutions for emerging risks
Patricia Renzi, CEO of life technology solutions at Milliman, explains how the firm is developing tools to help insurers deal with the emerging threats of cyber and climate risk
How do you expect insurance risk and capital management to change over the next five years and how will technology support this?
I am unsure if regulatory capital requirements in the US are going to shift, but insurers’ internal approaches to economic capital and understanding their risks, such as climate change, cyber risk and environmental, social and governance (ESG) factors are definitely evolving.
Most insurers in the US are very comfortable with financial risk, but there are new risks to contend with and significant energy will be dedicated to really trying to understand, measure and monitor these risks. Cyber and climate risks are at the top of that list.
From what I see in the UK and Europe, the regulators are pushing companies to look hard at cyber and climate risk. In the US, the regulators are not necessarily pushing it, but companies are taking the initiative to define their own methodologies.
What software updates does Milliman plan over the next year?
For the existing products we have, staying current with trends and regulation is paramount.
We also have some new products that are just getting out into the market around cyber, climate and operational risk. As mentioned, we are seeing a growing acknowledgement that being able to measure those risks in a broad and comprehensive way is necessary and lacking right now.
If we look at operational risk, people have been measuring operational risk, but it has been very basic. So, it is crucial for insurers to really understand where all their operational risks are. You will see some nice inventions from us in this area.
Our cyber risk product is now available. These are all built on Milliman’s CRisALIS risk management platform. We are also looking to leverage the CRisALIS platform for a climate risk product.
We are also building in parameters to our CHESS product, which is an economic scenario generator, to monitor risks associated with portfolios from the perspectives of ESG.
Here are a few key points of difference about Milliman’s CRisALIS platform:
- It is forward-looking, and not tied to being calibrated on past data. For evolving or adversarial risks like climate and cyber, this is important;
- CRisALIS is explanatory – frequency-severity modelling cannot tell you why the outcome is what it is, but CRisALIS can;
- In addition, CRisALIS incorporates data and expert knowledge transparently. CRisALIS is clear about which assumptions are certain and the consequences of them being less certain.
What insurance technology trends do you expect in the future?
Broadly speaking, the insurance industry has been slow in adopting a digital strategy. I believe there is a huge opportunity now and the industry is ripe for that. The pandemic has also highlighted the need for a digital strategy, and my expectation is there will be a big investment from insurers in digitalisation.
I expect most of this digital investment will be on the customer-facing side of insurance first, but I’m also seeing companies recognise that with increased regulations and emerging risks, being efficient and effective in internal operations is critical.
Insurers that have invested in optimising those functions are in a much better place than their peers.
Royal London, for example, has made a big investment in transforming its actuarial and risk functions, leveraging our technology.
When the pandemic created a huge market event, Royal London was able to monitor the impact on capital due to the market volatility in close to real-time due to the automation.
How does Milliman stand out from its competitors?
Our real value proposition is we have deep subject matter expertise within Milliman. We also have an incredible technology team. For example, we were using cloud technology in 2010. We are on the edge of emerging technologies, and also have people who are right on the edge of emerging risks and actuarial thought leadership.
Where we really shine is looking at what’s out there, what is new, and what are people not really thinking about.
