As many countries continue to grapple with rising inflation and the ripple effects of geopolitical conflict, real estate risk is in a state of flux and risk managers must be proactive and adapt to far-reaching changes.
Hemant Shah (pictured above), chief executive of trading risk platform Archipelago and retired founder of risk modeling firm RMS, said homeowners should take a new approach to risk, especially with insurance rates on the rise. rapid increase.
“Homeowners have now experienced more than six years of double-digit average rate increases for their homeowners insurance programs,” Shah said. “Insurance costs are growing, while, at the same time, it’s getting harder for them to get the capacity and coverage they need. More frequent and severe natural catastrophes, most recently Hurricane Ian, continue to tighten the market, and homeowners are increasingly aware that a changing climate is likely to persist with these adverse trends for years to come. These forces are prompting major homeowners/buyers to reassess their insurance and risk management strategies.”
Shah expects owners to make more data-driven decisions to restructure and optimize their insurance programs, exploring more alternative methods of risk transfer. However, he also stressed the importance of having strong data capabilities in arriving at the right decisions.
“To take more proactive and innovative steps, owners and their risk management teams must have the data they need, at their fingertips, to take control and act on their own view of risk,” Shah said. “Better data enables better decisions and it is necessary to do so.”
According to Shah, proactive owners will drive a paradigm shift, transforming their strategies from “buying insurance” to “selling risk.”
“This is about more than just semantics,” Shah said. “Those who buy insurance are price takers, reacting to insurer quotes and doing their best on margins to calibrate their expenses, coverage and terms in response to the markets view of their risk. Those who sell risk will be much more proactive. They will have their own data-driven views of risk, regardless of market prices. They will take control with more fundamental decisions about their insurance strategies, including how to structure their retainers, size their captives, access capacity, optimize their programs and invest in their own resilience. And, in response to market prices and cycles, it will make bolder and more deliberate decisions about whether to sell or swap all, part or part of its risk, including to alternative sources of capacity.”
He added that the paradigm shift will drive more holistic risk management strategies, in which owners will retain more of their risks, access more capacity from the capital markets, and demand more from their insurance partners. In addition to insurance coverage, clients will rely on insurers to provide knowledge and experience to help them make better risk management decisions, including how to invest in their own resilience and risk mitigation.
How have recent global developments affected your organization’s property risk? Let us know in the comments.
