1. TheBigChilli12
■ MANY people in Bangkok are asking why
they are seeing such huge increases in their
insurance premiums. And whilst everyone
knows how devastating the Thai floods were
to both the people and businesses affected,
we are only beginning to see the financial
implications trickle down from the insurance
industry and on to the business community
that uses these insurance companies’ services.
But really the Thai floods were not the sole
cause of this dramatic rise in premiums; they
were just one of many factors that have been
gradually building up over the last few years.
A culmination of factors
In essence, we have seen a whole series of
events including the banking crisis, natural
Know my company: Vencap
Without one of these to predict
the future, what’s the next best
thing for an insurance company?
INSIGHT BUSINESS
catastrophes on an unprecedented scale, the Eurozone crisis, stock market malaise
etc., and all these events have led to a fundamental shift in the way insurers need to
operate in the future.
Historically, insurers would make their money from the investment profits
using the premiums received from policyholders. But those days are gone in
Europe and are beginning to fade here in Asia. So now insurers have to manage
the challenges of remaining competitive in the market without relying on these
investment returns to offset the losses from their insurance claims. Furthermore,
Regulatory changes require all insurance companies to demonstrate they have
sufficient capital (or solvency) to withstand an extremely bad year for claims and
other negative factors happening at the same time.
In Europe this is called Solvency Two (SOL II), but in Asia, every insurance
Regulator is adopting similar schemes and these are commonly known as Risk
Based Capital regimes (RBC). This allows the Regulator to test the insurers’ ability
to withstand an extremely bad year and have sufficient cash in the bank to cover all
its debts and carry on trading.
RBC was introduced in Thailand in 2011, but in many other ASEAN countries they
have been in existence for some time, e.g. Singapore in 2004 and Malaysia in 2009.

2. TheBigChilli14
INSIGHT BUSINESS
Calculating the risk
So, how does an insurer know what this
solvency sum should be in Thai baht?
This is where the use of Dynamic
Financial Analysis (DFA) comes in. DFA is a
software modelling tool that allows an insurer
to input all their risk factors; underwriting,
market, credit, economy, liquidity, etc. and
then the DFA software runs thousands of
simulations to produce a range of results
from the most likely to the least likely.
If you think of DFA as a huge cup full of
dice; each dice representing a different risk
element for that business and then throwing
the dices 100,000 times and recording the
scores. Eventually you will get a graph like a
bell with the most likely being at the top and
the least likely stretching out at the bottom.
Along that curve is the point where the
Regulator requires you to show you have
enough cash.
In this example, Company A and
Company B is equally profitable. But
Company A is much more stable and would
be preferred by Rating agencies, Regulators,
Reinsurers and Investors.
Since its launch, Risk Explorer has
become the leading independent DFA
software supplier and is used by some of
the most respected insurers, reinsurers and
brokers across the globe.
As a result of this usage, insurers are
beginning to assess which business sectors
are profitable, what areas require the most
amount of reserves and other key factors that
when combined, allow an insurance company
to be able to set premiums based on a greater
understanding of risk and not based largely
on the average price in the market.
The consequence of all this means
insurers will now price premiums
appropriately for the risk or price themselves
out of markets that no longer fit with their risk appetite or corporate profile.
Regulators are also beginning to use Risk Explorer; indeed the OIC (the
Regulator for the Thailand insurance industry) has been trialling Risk Explorer for
over a year and the Philippines Regulator is also using the product.
ASEAN Liberalisation – 2015
Another factor that will influence insurance premiums over the next couple of years
is the ASEAN liberalisation in 2015. This will allow insurers to sell across borders
and consumers will be able to be purchase from anywhere in the region, regardless
of where they live or work. The free movement of persons and labour will offer
insurers a range of challenges and opportunities that technology can support.
About Vencap
The Risk Explorer DFA software is just one of a range of highly sophisticated software
products that are distributed by Vencap.
Set up approximately two years ago, Vencap has been developing a boutique business
focused purely on providing highly innovative IT solutions for the Asian insurance industry.
Clients include JLT Re, Munich Re, Willis Re, Allied World and Asia Reinsurance Brokers.
Vencap also distributes GuardTime – “the lie detector for data”. A new technology for the
insurance industry (or any industry for that matter) that allows a business user to put a “seal” on
any electronic file (Word, Excel, Email, PDF, Video, Photo, etc.) and be able to refer back to that
data file at any time in the future and know if it has ever been tampered with since it was created.
This has tremendous potential for the insurance and financial services industry as a
whole and has already received support from many industry and government leaders,
including an award from SWIFT in 2011, who selected GuardTime as the world’s most
innovative start up in banking and finance.
Read more about Risk Explorer and GuardTime by checking www.venvell.com
For further info contact Chris Venvell, Managing Director of Vencap, via
email: chris@venvell.com Tel: 08 7101 6266