Cargo transportation

Antonia Martínez, Head of Operations at leading Latin American marine insurance MGA Cargocorp Underwriters, explains how the rise of new technologies and data is enabling a shift from gut based underwriting to a more accurate basis that will support further growth and innovation

After 24 years in the industry, Cargocorp Underwriters has been able to observe the relationship between information and a successful portfolio. It is easy to see that the insurance industry has come a long way and increased worldwide support to industries and clients. While it now heavily relies on real time data and complementing information, that has not always been the case.

Back in the mid to late 1990’s, Cargo transportation risks, were accepted based on unsupported reputations. This would lead goods to be classified by personal experiences and testimonies without the proper backing to justify the information being spread. One large loss for an insurance entity could easily deem a certain good as non-preferred risks. The opposite can be true for risks that performed well.

HIGH VALUE CLAIMS

For example, if there were to be three large losses in Colombia during the transport of packaged snacks, such as potato chips, and these losses resulted in high valued claims there would possibly be a rise in premiums for these risks.

The information of the claim value would be enough for the surrounding and regional insurers to act, compromising the market value of these transports. This would prove to be detrimental for the clients that would now face industry-wide increased deductibles as well as high premiums, often opting to go uninsured now leaving the insurers without premiums as well. Even without the proper cause of loss or the acknowledgment of possible risk mitigation, the market would be affected.

Through time, it became obvious the industry needed a new objective, to find the factual information to prove or disprove the circulating communications. Various companies took the opportunity of emerging technologies to begin further analyzing risk.

INTEGRATED INFORMATION SYSTEMS

Cargocorp was one of those companies striving to integrate information systems to the marine insurance market. Using

The rise of the rational underwriter

“Geographical factors in the Latin American region can prove to be one of the most substantial points of analysis. It is a large and important marine market with volatile combined ratios that seem to rise and

fall in union.’’

actuarial science and weighing individual factors to properly rate risks becoming an integral part of the business.

The different factors that Cargocorp found necessary to analyze were: > Terms of insurance such as deductibles, wording, and limits per conveyance amongst other terms; > The client’s operation: who the client is, what they do, how they do it, what do they produce and how to they commercialize and distribute it; > Geography: where is this taking place, where was the origin and the destination.

Geographical factors in the Latin American region can prove to be one of the most substantial points of analysis. It is a large and important marine market with volatile combined ratios that seem to rise and fall in union. The demographic information continuously plays a part on insurance and their losses.

For example, in the early 2000’s fax toner was a highly smuggled good in Latin America. A seemingly safe product to transport for many parts of the world, in Latin America, it was a difficult risk to undertake. This was because of high black-market prices for this product specifically.

Back in the mid to late 1990’s, Cargo transportation risks, were accepted based on unsupported reputations. This would lead goods to be classified by personal experiences and testimonies without the proper backing to justify the information being spread.

INCORRECT UNDERWRITING

Once an analysis of the situation was carried out, it was not difficult to see that many of the problems in the region stemmed from incorrect underwriting and pricing.

Using all this information, it becomes easier to observe these supply chains, from production to transport, to storage and then distribution. Finding all the weak links within this process and expressing it to the insuring agencies and the clients. The distribution of information is helpful to the client, the insuring and reinsuring entities. With the proper implementation of solutions, the client could save their product and underwriters from claims, using data and facts.

With the new flow of information, the next natural step in the technological aspects in the market would be to transform this information to reusable data. This data could include anything from ports and warehouses inspections, loss reports, logistics, carriers and dealer information. All of this with the right skill can become visible trends and tools easier to understand.

Using all of this and combining it with the increasing global databases that display climate change, civil unrest and catastrophic events, underwriters now have the ability to make sound justifiable decisions. Using the traditional way of underwriting that included a “gut feeling,” personal reputations and the information displayed on a slip is no longer responsible underwriting.

While the business turns its focus from premiums to performance it is necessary for technology to continue to revolutionize the industry. With the many insurtechs that are emerging globally, it is time for information and the right use of the big data and underwriting to form a solid alliance. The industry has an opportunity to educate, give support to new economies and industries and to grow. It is time to take it.