3 ways to use financial modeling to understand actual exposure

by Rebecca Morris on March 11, 2019

SpatialKey financial modeling

As the market continues to become increasingly challenging, having an underwriting and portfolio management platform that includes financial modeling is critical to:

  • Staying competitive when underwriting new business

  • Understanding and managing concentrations in order to reduce losses and determine growth strategies

  • Confidently communicating potential catastrophe losses to management teams

When evaluating analytic solutions, a platform's financial engine should take into consideration terms and conditions that accurately reflect your policy structures, and be fully integrated throughout your organization from underwriting to portfolio management and event response. This way, you’re prepared with the most accurate information for anyone throughout your organization during a time-sensitive event.

Here are three ways to use financial modeling to enhance your analyses within SpatialKey...

1) Underwriting: Use pre-bind analysis to evaluate accumulations

Organizations can gain a competitive advantage by using SpatialKey to merge analytics and financial modeling together at the point of sale. Looking at accumulations prior to binding helps underwriters determine coverage limits and facultative reinsurance needs for new and renewing risks. Likewise, it puts analytics at their fingertips empowering them to make decisions without referral for aggregate checks on each risk being evaluated.

pre-bind analysis accumulations

An “over 50M threshold” flag draws your attention to the prospective risk above. Further analysis shows that adding this risk would increase ground up losses by 1% and net losses by 78%—indicating that perhaps the risk could be written, but it would require considerable policy limits or facultative reinsurance.

2) Portfolio management: Understand and manage your exposure concentrations

Financial modeling is critical in helping portfolio managers understand and manage concentrations, whether the goal is reducing losses or advising where to grow business. Using SpatialKey’s accumulation solution, you can identify policies where additional facultative reinsurance may be applicable or pinpoint locations coming up for renewal that may require new policy terms, additional premium or are subject to non-renewal.

portfolio accumulations

When looking at top portfolio concentrations within a 1-mile radius, you can see 10 accumulations above with exposure exceeding the $150 million threshold.

facultative reinsurance exposure

Diving into a concentration where exposure exceeds the $150 million threshold, you can see above that facultative reinsurance is netting down exposure by $44 million, but that doesn’t push it below the threshold. With SpatialKey, you can easily see where you need to focus your time and risk mitigation efforts.

3) Event response: Understand your exposure to catastrophic events

When catastrophes strike, management expects answers ASAP. While it’s important to understand the total impacted values, you also want to ensure that you’re not overstating losses by overlooking policy terms that may reduce your exposure. This will give you the most accurate perspective on whether you have enough capital to support potential incoming claims.

event response facultative reinsurance

Shown above, $653 million of value was impacted by hail 2 inches or greater. When reporting to management, you can consider the impact of policy terms and facultative reinsurance and confidently cap the potential impact at $30.7 million in net losses.

The examples shown above illustrate why financial modeling is critical to determining actual exposure across your organization from underwriting to exposure management and event response. SpatialKey’s financial model provides insurers with a competitive advantage by coupling analytics with financial modeling, enabling enhanced precision and a more comprehensive view of both risk and opportunity.

To learn more about SpatialKey’s financial model, reach out to me directly: rebecca.morris@spatialkey.com


Rebecca Morris has 13 years of insurance industry experience and a passion for problem-solving. With a background in insurance analytics, she has put her mathematics expertise into action by leading the development and delivery of SpatialKey’s financial model. She’s also responsible for client adoption efforts, ensuring SpatialKey’s solutions solve key business needs and are approachable for any business user.

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