Far from theoretical, the cornerstones for this transformation are already being put in place to the benefit of insurance practitioners across insurers, brokers, and clients. Those were some of the messages delivered to virtual delegates at the third of six aviation webinars being hosted by WTW.
The session, opened by Simon Toms, Senior Account Executive at WTW, showcased how new data tools could be and are being used to change the venerable practice of creating risk in an aviation insurance programme, and to build more effective relationships between insurers, brokers, and their clients.
According to Joe Tunstall, Senior Risk Manager and Head of Insurance for easyJet, a recent commitment to unlocking data intelligence is already paying dividends for one of Europe’s leading low-cost carriers.
“We have built a greater understanding of what our risks are … we are now able to talk from a point of knowledge.”
Joe Tunstall
Senior Risk Manager and Head of Insurance, easyJet
“We have built a greater understanding of what our risks are … we are now able to talk from a point of knowledge to our insurers and demonstrate we are doing the right things,” Tunstall told delegates. “That has given us better rates of risk transfer and pricing, which has generated a better result come renewal season.”
Tunstall joined easyJet in 2019; shortly thereafter, the company put in place a modern data management system, began identifying key internal data keepers and ramped up demands for information from third parties, particularly when insured claims were involved.
He said some of easyJet’s suppliers saw the volume of information they were required to supply grow by a factor of 10, which “raised a few eyebrows”, but that similar demands were made of the airline’s holders of strategic internal data; for example, Tunstall estimates the airline now requires an average 140 data points per insured claim, so they can get a clearer picture of the origins of their insurance costs.
Whatever intelligence that generates is shared among key company stakeholders, whereas, in the past, it may have remained in one of the company’s business silos and “dusted off as a marketing exercise during renewal season”, he said. And the emphasis on leveraging data has provided benefits beyond cost-savings.
“Initially, we focused on claims, because that is it where we felt we could get the biggest return. We identified our key claim sets: passenger liability; aviation hull damage; pilot’s loss of licence, some non-aviation classes, etc. Then we asked: ‘what are we going to use this information for?’,” he said. “Renewals, to talk to our insurers about key issues, but also to make the changes that will help us to stop the incidents that result in insured claims.”
One of the challenges of the ‘big-data’ era has been managing the vast swathes of information that are collected in ways that support analysis. Otherwise, more data is just … more data.
Aviation insurance transactions illustrate the complexities of managing the new data sets, according to Karim Sfeir, Executive Director and Global Head of Strategy, Development and Innovation at WTW.
Data relating to aviation programmes is diverse and complex. Aircraft are added and deleted, they can repeatedly change from ground to flight cover, their values change, and they operate among different destinations with variance in geopolitical risk. Combine those exposures and many more with a customised rating structure and then multiply these by the number of insurers participating on any risk syndication and a very complex dataset quickly emerges.
Thankfully, there are a growing number of tools, such as no-code solutions, robotic-process automation and application-programming interface software, available to help airlines, brokers and insurers manage these increasingly complex datasets and to help standardise the formats in which they are shared.
“Most companies worked with a central ERP [enterprise-resource planning] system that can be very difficult to customise to output insurance data, but solution tools are now more widely available,” Sfeir said. “This could give us a seamless exchange of data in the future.”
“One of our early wins has been standardising the way we capture and treat data. It has allowed us to add visualisation for our clients and insurers, so they can better understand the risk profile,” he said. “Everybody agrees it is far more important to spend valuable time analysing and understanding risks, rather than collecting data.”
As much of the information required for risk analysis in the aviation business is generated by the insurance (brokers, lawyers) and manufacturing supply chains, both Tunstall and Sfeir said it was a growing trend for airlines to transfer the responsibility for collecting it onto third parties.
At the early stage, one of the legacy challenges for the insurance sector was building data literacy in an industry that has traditionally prioritised the hiring of dealmakers rather than analysts. The second is transforming the data it has into reliable formats that are consistent enough to build multiparty trust and allow basic calculations to be automated.
According to Paul Cooper, the Deputy Head of Aerospace for Convex Insurance, the process of building data confidence could start when an insurer reaches an agreement with the client (and/or broker) on the creation of ‘predictable data points’, information the partners are used to trading on, items such as an airline’s average fleet value, number of departures, RPKs (revenue passenger kilometers), associated losses, etc.
Thresholds would have to be established for policy pricing, but the goal is to get to the point where tens of thousands of lines of data can be submitted by the client or their broker directly into an underwriter’s data-processing model and processed in minutes rather than days.
Once the data is in the system, attention can turn to how to use it more efficiently to benefit its owner.
“Your aircraft are producing thousands of points of data every second; we want to harness that data and play that back to you and say: ‘Okay, over a period of time, this is how much you’ve flown, and this is how much we’re going to charge you for that risk’,” said Convex Insurance’s Head of Aerospace, Mike Hansen. “As the business flows, so flows your premium. This removes an area of friction – the classic annual [renewal] period – because the policy just continues.”
“As the business flows, so flows your premium. This removes an area of friction – the classic annual [renewal] period – because the policy just continues.”
Mike Hansen | Head of Aerospace, Convex Insurance
This kind of dynamic model would have served the industry well during COVID-19, Hansen said. “With the uncertainty there has been around exposures during COVID-19 and the amount of work that the entire market has had to do to address the wild fluctuations, we could have taken all of that friction out, if we built a policy that was dynamic in nature.”
Given the billions of terabytes of data aviation produces every year, Hansen told delegates he saw the scope for data analytics to align an airline’s insurance policy areas of its business that are less cashflow related, such as achievement of safety and sustainability goals.
“We absorb all this great safety data. The technological advances the airline industry has made are enormous and we are not reflecting that in the product because it is the same product that existed 40 years ago,” Hansen said.
When asked for his views about the future of aviation insurance, Karim Sfeir advised that a number of new types of insurance providers were entering the specialty insurance market with a new take on insurance but that WTW Aerospace takes the view that such competition was actually an opportunity way before it becomes a threat because of the wealth of experience and data that the company has and that would be difficult for others to reconstitute.
This ‘state-of-the-industry’ webinar series scheduled by WTW, supported the aviation sector by providing an opportunity for the industry to convene and discuss a broad spectrum of risk and insurance issues in what are proving to be challenging times for airlines.
