Tag Archives: liquidity

ERM Is Ignoring 4 Key Tasks

Over the last decade, economic capital has captured the risk management spotlight. Recognizing its merits, insurers have deployed economic capital for many uses. Regulators now rely on it, too — especially internationally — and have put it at the center of their prudential regulatory agenda.

Economic capital (defined as value at risk over a year) has two unique and extremely useful characteristics. First, the concept can be applied to any event with an uncertain outcome where a probability distribution of the outcomes can be postulated. Thus, insurers can value, in a consistent and comparable manner, very different risky events — such as mortality claims, credit losses and catastrophic property damages. Second, economic capital calculated for a portfolio of risks can be readily subdivided into the economic capital attributable to each risk in that portfolio. Or, alternatively, economic capital calculated at the individual risk level can be aggregated to economic capital at the portfolio level and beyond, across portfolios to the enterprise level.

However, there are four critical enterprise risk management (ERM) tasks for which economic capital is not an effective tool; unfortunately, because of this, we have observed a tendency for risk managers to de-emphasize those tasks and sometimes ignore them altogether. We believe this should change.

See also: How to Improve Stress Testing  

In response to these shortcomings, insurers should take full advantage of stress testing, a valuable risk management tool that is on par with economic capital in terms of its potential to help solve problems and improve performance. And, because stress testing enables insurers to tackle many of the important tasks that economic capital cannot, it gives insurers the opportunity to double the size of their risk management tool kit and thereby double their ERM output.

Liquidity

By design, economic capital assumes assets and liabilities can be monetized at their formulaic values — that is, at the values derived from the probability distributions’ assumptions. But, as we saw in the credit crisis of 2008-09, credit markets can seize up under extreme stress. When that happens, many assets — regardless of their formulaic value — cannot be sold at any price. Because of this, economic capital is not an effective tool to understand and manage liquidity risk.

To address the risks posed by insufficient liquidity, insurers need to play out meaningful stress events and postulate how they might affect both the ability to monetize assets and the asset’s price if they can be monetized, as well as critically assess the ability to actually access pre-arranged credit in the event these stress events unfold. Then, with an understanding of the likely challenges these stresses may impose, insurers can test the effectiveness of the potential mitigating strategies that they can deploy immediately or when stress events begin to unfold. Selecting and documenting the most effective options can become the insurer’s liquidity risk management game plan.

Diversification

Diversification is a cornerstone of effective insurance underwriting and risk management. The industry acknowledges the benefit of diversification across similar, independent risks and is able to apply considerable mathematical rigor to measuring this benefit. However, matters become less certain when attempting to quantify diversification across dissimilar risks such as mortality, credit and catastrophe. Extending the benefits of economic capital across risks requires that the capital amounts assigned to different risk types be combined.

Recognizing that extreme outcomes for each risk type are not likely to occur simultaneously, the combined capital requirement is typically calculated as the sum across risk types, with a credit given for diversification.

Deciding how much credit should be assigned for diversification is a critical question in establishing the enterprise’s total required capital. Unfortunately, historical information about the precise interaction of disparate extreme events is sparse.

Empirically, establishing diversification credits is difficult at best and is largely impossible for some combinations. For enterprise risk capital, a best guess may have to suffice. But, just because such a guess is sufficient for the purpose of ascribing required capital, it does not follow that it is sufficient for other purposes — particularly for charting a course of action across all risk types in the event of an extreme risk occurrence.

Stress testing is useful for this purpose. Playing out the series of interactions and events that could follow from a catastrophe such as an epidemic will yield much more actionable information than guessing the magnitude of the diversification credit. Constructing a future scenario that thoughtfully considers how an extreme event in one risk type will have an impact on others is key. These impacts occasionally are asymmetric and not easily accommodated in a standard diversification credit matrix. For example, we can be fairly certain that an extreme drop in equity values will not have significant impact on mortality rates. Conversely, it would seem imprudent to assume that an extreme pandemic would not have any impact on equity values.

Business risks

In a survey of insurance company board members and CROs that PwC conducted in June, the area where board members felt more attention would be most beneficial was “searching for, understanding and finding ways to address new risks” — meaning risks outside of traditional insurance, credit and market. Upon further discussion with the survey respondents, it became clear that they are not as interested in esoteric dialogues on black swans or unknown unknowns as they are in addressing more practical questions about currently evident business risks. In particular, survey respondents want to understand how those risks could materialize in ways that have an impact on their companies and how to mitigate those impacts.

Using stress testing to map out the impact of these business risks will help insurers assess how serious the risks are. The stress projection can measure the impact on their future financial condition after a risk event. And if the impact is significant, they can further deploy stress testing to map out potential management actions to reduce the risk’s likelihood of impact or mitigate damage if the impact occurs. Having an effective course of action is far better than hoping black swans won’t materialize.

Excessive capital

If insurers use only the economic capital tool, then there is a real risk that it will become a hammer, rendering everything in its path a nail. On discovering a new risk, the most likely reaction will be to call for more required capital. However, in the case of, for example, liquidity and business risk, a more effective approach is to use stress testing to create a plan for reducing or eliminating the risk’s impact.

Likewise, seeing economic capital as the sole means of addressing insurer insolvency can lead to an overly restrictive regulatory agenda that focuses only on the economic capital formula. This unfortunately appears to be the case in the development of some required capital standards. We think a more productive approach would be to recognize that no economic capital formula will ever be perfect, nor can one formula fit all business and regulatory needs around the world. Instead, a simpler formula augmented with stress testing can form a more effective, globally consistent solvency management framework.

Moving to the next level

In the paper we published earlier this year about the results of our stress testing survey, we noted that stress testing is well established in the insurance industry. Insurers use it for many purposes, and it has had significant impact. In fact, 36% of survey respondents indicated they have made key decisions markedly differently than prior to or without stress testing. A further 29% indicate stress testing has had a measurable influence (though no single key decision came to mind). The paper also identifies areas where only a little more effort can yield substantial benefit: through a clear definition of stress testing, through more thoughtful stress construction and through building a more robust stress testing platform.

See also: Risk Management: Off the Rails?  

To get the most advantage from stress testing, we have two further suggestions: 1) Insurers should apply a governance framework commensurate with stress testing’s status, and 2) insurers should advocate its use in new areas.

A good governance framework should include policies and procedures, documentation, model validation and independent review, as well as review by internal audit. Board and senior management oversight is also important. While our survey report notes that boards usually receive stress testing results from management, we recommend that management engage the board more in the stress selection process.

While stress testing certainly can add additional insight to insurance, credit and market risk analysis, economic capital already provides a good foundation in these areas. We recommend that insurers use stress testing, in particular, to tackle business risks where economic capital is not an effective tool. This includes new threats like cyberterrorism and their reputational impact. Stress testing can also be useful for understanding the risk of missed business opportunities, such as the failure to address how emerging trends in technology and customer behavior may have an impact on future sales and earnings potential.

We believe that the scope for the application of stress testing is as significant as for economic capital. And as with economic capital, once an effective tool comes into use, many more useful risk and business management applications will ensue.

Stocks: The Many Faces of Volatility

The current year has been characterized by increasing daily volatility in financial asset prices. This is occurring in bonds as well as stocks. In fact, through the first six months of this year, the major equity markets have been trading within a narrow price band, back and forth, back and forth. Enough to induce seasickness among the investment community.

The S&P 500 ended 2014 at 2058. On June 30, 2015, the S&P closed at 2063. In other words, the S&P spent six months going up all of five points, or 0.2%. Yet if we look at the daily change in the S&P price, the S&P actually traveled 1,544 points, daily closing price to daily closing price, in the first six months of the year. Dramamine, anyone?

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Price volatility seems to have increased, but point-to-point percentage price moves have actually been very small. When looked at within the context of an entire bull market cycle, a 3.5% price move in either direction is close to a rounding error. This is the face of volatility we have experienced over the first half of 2015. Not quite as scary as is portrayed in the media, right?

In one sense, what we have really experienced this year is what is termed a “sideways correction.”

Financial markets can correct in any number of ways. We usually think of a correction in prices as a meaningful drop. That is certainly one form of a correction, and never much fun. Markets can also correct in sideways fashion. In a sideways correction, the markets go back and forth, often waiting for fundamentals of the economy and corporate earnings to catch up with prices that have already moved. The markets are digesting prior gains. Time for a “time out.”

At least so far, this is what appears to be occurring this year. Make no mistake about it, sideways corrections heighten the perception of price volatility. That’s why it is so important to step away from the day to day and look at longer-term market character. A key danger for investors is allowing day-to-day price volatility to influence emotions, and heightened emotions to influence investment decision making.

Two issues we do believe to be very important at this stage of the market cycle are safety and liquidity. We live in a world where central banks are openly debasing their currencies, where government balance sheets are deteriorating, where governments (to greater or lesser degrees) are increasing the hunt for taxes and where cash left in certain banking systems is being charged a fee (negative interest rates) just to sit. None of these actions is friendly to capital, which is why we see so much global capital on the move.

It’s simply seeking safety and liquidity. Is that too much to ask?

To understand where the money may go, it’s important to look at the size and character of major global asset classes. In the chart below, we look at real estate and bond (credit) and stock markets. We’ve additionally shown the global money supply and gold.

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One of the key takeaways from this data is that the global credit/bond market is about 2.5 times as large as the global equity market. We have expressed our longer-term concern over bonds, especially government bonds. After 35 years of a bull market in bonds, will we have another 35 years of such good fortune? Not a chance. With interest rates at generational lows, the 35-year bond bull market isn’t in the final innings; it’s already in extra innings, thanks to the money printing antics of global central banks. So as we think ahead, we need to contemplate a very important question. What happens to this $160 trillion-plus investment in the global bond market when the 35-year bond bull market breathes its last and the downside begins?

One answer is that some of this capital will go to what is termed “money heaven.” It will never be seen again; it will simply be lost. Another possible outcome is that the money reallocates to an alternative asset class. Could 5% of the total bond market move to gold? Probably not, as this is a sum larger than total global gold holdings. Will it move to real estate? Potentially, but real estate is already the largest asset class in nominal dollar size globally. Could it reallocate to stocks? This is another potential outcome. Think about pension funds that are not only underfunded but have specific rate-of-return mandates. Can they stand there and watch their bond holdings decline? Never. They will be forced to sell bonds and reallocate the proceeds. The question is where. Other large institutional investors face the same issue. Equities may be a key repository in a world where global capital is seeking safety and liquidity. Again, only a potential outcome.

We simply need to watch the movement of global capital and how that is expressed in the forward price of these key global asset classes. Watching where the S&P ultimately moves out of this currently tight trading range seen this year will be very important. It will be a signal as to where global capital is moving at the margin among the major global assets classes.

Checking our emotions at the door is essential. Not getting caught up or emotionally influenced in the up and down of day-to-day price movement is essential. Putting price volatility and market movement into much broader perspective allows us to step back and see the larger global picture of capital movement.

These are the important issues, not where the S&P closes tomorrow, or the next day. Or, for that matter, the day after that.

5 Innovations in Microinsurance

Earlier this year, a group of eight leading insurers and brokers established a consortium to promote microinsurance ventures in developing countries, unsurprisingly called Microinsurance Venture Incubator (MVI). Together, AIG, Aspen Insurance, XL Catlin, Guy Carpenter, Marsh & McLennan, Hamilton Insurance, Transatlantic Reinsurance and Zurich plan to launch 10 microinsurance ventures over the next 10 years.

While conventional insurance targets middle to high-income urban dwellers, microinsurance targets rural residents living on the edge of poverty. Most popular are microinsurance products that offer life, health, accident or property insurance.

However, to really be the “can-do” coverage for the poor, it is not enough for microinsurance to be affordable and accessible; it also has to be tailored to the unique environment in which it is being offered. After all, context is king.

So with the context of “poor people deserve innovation too,” here are five examples of innovative microinsurance schemes that target different risk pools:

1. The Use of Technology to Combat Fraud

Insurers providing livestock insurance in India have been struggling with high claims ratios, mostly because of fraud. Typically, to get coverage, a veterinarian would place an external plastic tag on the animal’s ear as an indication that that specific animal is insured. However, this produced zero controls in place, and insurers learned that these plastic tags somehow made their way to dead cattle, way too frequently.

Nowadays, India’s IFFCO-Tokio (ITGI) insurance company is using radio frequency identification (RFID) chips that are injected under the skin of the animal (which is less painful than tagging!). These chips are accessible through a reader, which allows an insurance official to easily verify that the RFID reading coincides with the identification number on the policy, when a farmer reports a claim. This results in fewer fraudulent cases and faster claim processing.

Almost a fairy tale ending if it wasn’t for the high price of these microchips. Nonetheless ITGI is using a combination of external plastic tags and RFID chips to control their costs yet still prevent excessive fraud. It’s working.

2. Forming Index-Based Insurance to Build Trust

Another promising innovation is index-based insurance, where an external indicator triggers payments to clients rather than the traditional “I’m calling to report a claim.”

Kilimo Salama, AKA Safe Farming, combines mobile phone payment system with solar powered weather stations to offer farmers in Kenya “pay as you plant” insurance.

Here’s how it works:

  • A farmer goes to an approved dealer and buys a bag of fertilizer, which he pays 5% extra for to get climate coverage.
  • The dealer scans a special bar code, which immediately registers the policy with the insurance provider and sends a text message confirming the insurance policy to the farmer’s mobile phone.
  • When data transmitted from a particular weather station indicates drought or other extreme condition is taking place, the farmer registered with that station automatically receives payouts via a mobile money transfer service.
  • Similarly, a more recent entrant called ClimateSecure says it will “work hand-in-hand with [its] clients, meteorologists, financial experts and other brokers in order to build indexes that most accurately reflect [their] clients’ risk.”

3. Targeting the Cash Poor by Relaxing Liquidity Constraints

In China, pork composes roughly 48% of livestock production, with most pigs generally raised in small numbers by rural families in their backyards, forcing Chinese hog farmers to face the risk of hog diseases. Yet, despite the obvious benefits of microinsurance products, the demand is still low because of cash constraints and a lack of trust in insurance providers.

Yet a pig insurance scheme, which offered credit vouchers that allowed farmers to take up insurance while delaying the premium payment until the end of the insured period, coinciding with when pigs are sold, saw their insurance premiums go up by 11%.

By the same token, telecommunications companies embed insurance premiums in their service contracts, with the advantage of offering (oftentimes free) coverage as part of a pre-existing plan. In Africa, for instance, free insurance is linked to phone data usage; the more airtime one buys, the more coverage he/she gets.

4. Product Bundling to Attract Customers

The 2014 winner of the prestigious Hult Prize, NanoHealth, is a social enterprise that not only offers microinsurance but also tackles chronic diseases by providing door-to-door diagnostics via its network of community health workers, which it equips with a low-cost point-of-care device called Doc-in-a-Bag. This startup is slowly but surely creating India’s largest slum-based electronic medical record system and disease landscape map.

5. Coverage Within Reach via Garbage in, Coverage out

Forget bitcoin, garbage is the new currency with this Indonesian startup called Garbage Clinical Insurance (GCI), which was founded by a 26 year-old doctor named Gamal Albinsaid. Through GCI, community residents are encouraged to recycle and get healthcare coverage at the same time because trash is translated to funds that can later be used to pay for medical insurance.

In sum, in this micro world of microinsurance, where only 260 million of the world’s low-income citizens are covered, words like big data and claim history could not matter less. What matters is how quickly an insurer can scale, how low can its margins go and how clearly can it communicate its offering to the low-income farmer all in the name of for-profit social enterprise.

Expect more entrants.

ERM: Everything Risk Management

References to enterprise risk management (ERM) pervade insurance discussions of late. Driven by impending regulatory reform in the U.S. and UK, the investment-related aspects of ERM were amplified in the aftermath of the financial crisis, as insurers dealt with impairment and other-than-temporary-impairment (OTTI) issues in their portfolio, while at the same time operating in a market with soft pricing for many underwriting lines. Efforts to take a holistic approach in managing enterprise-wide risk can present various challenges in integrating the potentially vast flows of information.

The classic Peter Drucker axiom “what gets measured, gets managed” still rings true, but determining which are the key metrics as one embarks on the ERM journey can prove daunting. ERM feels like “everything risk management” and frequently, it seems, the investment portfolio is not fully counted in the calculus. Five years on from the peak of the financial crisis, memories are fading of how financial market turmoil can ravage an insurer’s investment portfolio and thus impact its entire business model.

From an investment perspective, preparing an investment portfolio for a rising interest rate climate is a critical component of the ERM complex. Rising interest rates pose a challenge to an insurer’s capital by diminishing principal value on a market-to-market basis. Insurers are often less concerned about positioning their portfolio for rising rates than they should be, particularly if their organisation has historically employed a book yield, buy-and-hold mentality that involves infrequent selling of bonds prior to maturity.

With an ERM framework in mind, let’s briefly examine three risks that all have a bearing on an insurer’s capital growth and preservation, and what they portend in a rising interest rate environment.

Investment Risk No. 1: Complacency, or a static approach to managing assets

A static approach to managing a bond portfolio is most problematic if rates rise very quickly. A portfolio which is not repositioned proactively as market dynamics change simply reinvests at the mercy of prevailing rates when bonds mature. Reinvestment of coupon income and maturing bonds may pose little trouble if rates are rising, however if the bonds must be sold prior to maturity, an insurer may not realize the price reflected in the carrying value.

A quick review of bond issuance over the past few years shows a universe in which credit quality has decidedly migrated downward. In fact over 50% of the corporate bond market is BBB or below (the BBB-category is the lower bound for investment grade, below is considered high yield or ‘junk’), according to Barclays and Securities Industry and Financial Markets Association (SIFMA) data. Additionally, the maturities of debt issues have extended. The average maturity of a corporate bond was nearly 14 years in 2012. Ten years earlier, average maturity stood at eight years. It makes sense, after all – what corporation’s CFO would not want to borrow for as long a timeframe as possible given the historic lows of today’s interest rates? An insurer that seeks to replace the yield of maturing bonds in today’s environment may, somewhat unwittingly, extend itself both in terms of lesser credit quality and longer maturity. Neither are good for protecting capital when rates begin to rise.

At Sage, even when we manage a core bond portfolio with book yield constraints we monitor issues of portfolio duration and credit quality rigorously. There is no semi-aware “drift” into lesser or longer credits in the pursuit of absolute yield. As an extension of our captive clients’ risk management function, we seek to imbue the investment process with the same risk-awareness as the rest of the insurer’s operations.

A static approach with the surplus portfolio can also challenge capital. Frequently, when insurers seek additional capital growth and return in non-core asset classes such as preferred stocks, high yield bonds, or segments of the equity market, the same buy-and-hold approach prevails. We are firmly of the belief that a more active and tactical approach to managing surplus investments is just as important to investment risk management as it is in the core bond portfolio. Rarely will a constant allocation to yield-seeking segments bear out an optimised risk/return profile for the insurer, as the next point demonstrates.

Investment Risk No. 2 Asset allocation

It must be firmly acknowledged that the business goals and operating cashflow needs of a captive or risk retention group (RRG) are the primary driver of asset allocation. After all, an insurer cannot set asset allocation in a vacuum. There is no “standard” portfolio irrespective of the insurer’s underwriting book or corporate structure. A quickly growing RRG may seek to protect surplus to the utmost and carry no equity exposure. A single-parent captive with a parental liquidity backstop may invest 60% or more of the portfolio in equities and alternatives with a goal of growing capital more quickly. An 831(b) captive may invest in more tax exempt instruments in an effort to minimise the lone taxable element (investment income) of the captive.

A bunker mentality does not benefit a captive’s portfolio. Our perspective is simply that the portfolio must be constructed in a fashion that supports the captive’s liabilities and parental objectives, with securities that enable a transparent and efficient means of providing both return and liquidity, while always seeking to protect downside volatility. Just like a static approach to investing the captive’s portfolio can be detrimental, so too can an overly narrow universe of investment options, such as limiting a portfolio to only a few types of instruments. In 2012, the range of returns on fixed income segments was actually greater at 16.18% (from emerging  market debt with 17.95% return vs. international government bonds at 1.77%) than was the differential between the top-performing segment in the equities/alternatives space when compared to the bottom segment.

In the past, we have discussed the merits that exchange traded funds (ETFs) offer to insurers of all types in crafting exposure to equities or alternatives such as bank loans, emerging market corporate debt or sovereign debt. For de novo captives (generally single parent, depending on domicile guidelines) there are NAIC-rated fixed income ETFs covering every major bond market segment that allow for a diversified, high grade portfolio from inception. We have managed tactical ETF portfolios alongside core bond portfolios for over 15 years, and ETFs are one area where insurers experience continued improvement in cost and efficiencies in their portfolio.

An insurer is the ultimate arbiter of what is appropriate for their portfolio. At the business-as-usual end of the continuum, protecting capital erosion preserves competitive flexibility and operating margin; under the most severe of market conditions, protecting capital precludes the need for a liquidity injection from the corporate parent or capital calls to group or RRG members.

Investment Risk No. 3 Confusing capital quality with liquidity

Capital quality (i.e. the credit rating of a bond) and liquidity should not be confused. A captive insurer seeking to sell 25 bonds of a well-known ‘AA’ rated corporate issue may find a much better bid side than does an insurer seeking to sell an identical amount of bonds for an ‘AA’ rated, but thinly traded municipal issue.

Likewise, even a high grade bond portfolio which has extended its duration in an effort to maintain or seek out additional yield will have a different liquidity profile when interest rates begin to rise. The integration of various risks (business, operational, investment) is at the core of ERM framework. If a variety of challenges bear down on an insurer all at once, for instance if a natural disaster which triggers claims payments coincides with falling bond prices, a captive should have a sound understanding of the liquidity profile of its investments. Beyond the core bond portfolio, a captive who holds a portfolio of individual equities may find their ability to quickly raise cash limited under certain market conditions. Given the smaller average size of a captive portfolio, the lots tend to be smaller and therefore have a more limited bid side. And apart from pure liquidity concerns, the frictional costs of moving into or out of individual equity positions can chip away at the captive’s capital.

The challenge with distinguishing between capital quality and liquidity is that it doesn’t matter until it matters.

Conclusion

Captives in the US and Europe may avoid the requirements of solvency self-assessment due to minimum premium thresholds under the NAIC and EIOPA frameworks for ORSA. Nonetheless, for ERM purposes, the foregoing considerations will help captives and RRGs manage investment risk, particularly in the face of rising interest rates. Proper planning with the portfolio will enable improvisation on the business side if needed. 

This article first appeared in Captive Review Magazine.

A Technology Breakthrough for Valuing Tangible Assets

What are your clients’ tangible assets worth? If you are like most advisors, you don’t have a clear answer. Without that clarity, you are leaving yourself and your clients at risk. Tangible assets – valuables ranging from fine art and wine to classic cars and jewelry – make up an ever-increasing portion of household wealth. Yet there is little visibility into this asset class.

Why? Often, individuals find the process of documenting, tracking and managing the values of tangible assets to be tedious. Instead of producing a thorough inventory, the insured may opt for a blanket umbrella policy that covers general contents as a percentage of the home’s value. The individual may list certain items, but with inadequate documentation. Many times, both the insured and the insurer fail to keep up as the market value of collections changes.

Fortunately, technology has emerged that makes collecting and managing information about tangible assets significantly easier. Appraisers can collect detailed data and provenance on property and possessions and upload them to a personal, online digital locker, where the items are regularly valued, securely managed, and are accessible anytime. Individuals will soon be able to use their smartphones to take a picture of a valuable object and upload it directly to this locker. As items are added and values change, the owner is notified – and can choose to automatically alert his advisors, including insurers and wealth managers, to ensure the items are accounted for and adequately protected.

The continuous transparency that the locker provides into values can be eye-opening to users.  Case in point: A family in the Northeast has a large, valuable art collection. Thirty years ago, the family had the pieces insured, using estate values provided by auction houses. These values, as a rule, are much lower than retail replacement values, so the family’s collection was initially insured at about half of what it should have been. The collection had not been appraised since the early 1980s, and, when a wealth manager had it re-appraised in 2012, values had changed so substantially that a piece initially valued at several hundred thousand dollars now carries a fair market value of more than $50 million.

The consequences of this type of undervaluation are significant. Had the owner passed away before the revaluation, the estate could have suffered an immense tax bill. In the event of loss, theft, fire or water damage, the owner would have been severely underinsured and faced significant loss. In addition, had the owners known the higher value of the artwork, they could have sold or leveraged it.

The bottom line is: With more information about their valuables, individuals  – and their advisors – can make more informed decisions.

This ability to capture, securely store and provide real-time valuations is a momentous step forward in tangible wealth management, and has been made possible by several technological advancements:

1. Data About Prized Possessions
There is a massive amount of data now available on luxury items. Whether a person’s passion investment is wine, diamonds, classic automobiles or fine art, there is a database that captures the real-time value changes in the category. By using technology to process that data, individuals gain a better composite view of their wealth, a greater idea of potential liquidity options, and a more accurate way to assess risk.

2. Digital Collection — Onsite and at Retail
In the not-so-distant past, a person had to take pictures or videos and store them on a hard drive, keep receipts in a safe deposit box, and use a spreadsheet to capture information on valuables. Now that all communication and record keeping has gone digital, certified appraisers can use apps to capture all of this information on-site. Merchants can email electronic receipts. Individuals can snap a picture of any acquired item, add support information like a receipt, package art, or bar or QR-code and send it to their personal digital locker in real time. All of this information is securely accessible anytime, anywhere.

3. Cloud Storage and Connectivity
Once information is collected electronically, it can be safely and securely stored in a personal digital locker in the cloud. This eliminates the need for paper records or other media that can be lost, stolen, or destroyed.  In addition to storage, the cloud provides connectivity, creating a virtual ecosystem where individuals can privately view the value of their tangible assets and manage those assets. This new capability includes easy connections to on-line auction houses, dealers, insurers, wealth manager and the like to sell, insure, donate, or take other beneficial actions powered by information about everything a person owns.

Ultimately, data is currency, and new technology is helping individuals cash in on the data about their tangible wealth. The information about possessions has inherent value. By adopting emerging technologies to collect, value and connect the information about individuals’ personal property, individuals and their advisors can finally gain transparency into tangible assets – completing the total wealth picture.