Tag Archives: OASIS

Industry Demands an Open Ecosystem

Can you imagine a world where the open ecosystem dream is a reality? A world where our collective insurance platforms talk to each other? A world where the industry moves faster and better by working together? Oasis and Simplitium, along with a host of others, including SpatialKey, are on this path. While the dream feels idealistic, it is possible. Making data more portable between platforms—interoperability—is not something novel. It’s just fundamental and increasingly vital for long-term survival whether you’re a re/insurer, broker, MGA or solutions provider. We all have a stake in this conversation, and a responsibility to move our industry forward.

Industry demand for an open ecosystem is overwhelming. We increasingly depend on ecosystems, and we need greater interoperability to overcome inefficiencies and redundancies. Matthew Jones of Simplitium provides three key stepping stones we must embrace for greater interoperability:

  1. Avoid a monolithic “one system does all” approach
  2. Minimize the number of catastrophe risk modeling platforms, while maximizing choice in models across multiple vendors
  3. Design systems so that the possibility of change is embedded

Leading organizations are already heading down this path. Lloyd’s recently announced that after losing £1 billion in 2018 it’s looking to drive efficiencies, and one way is through “an ecosystem of products and services that all market participants have access to.” One size does not fit all—and a monolithic approach has proven unsuccessful time after time. Rapid innovation in risk management requires systems that are flexible, scalable, designed for change—and built in close collaboration with those who serve the industry.

See also: The Insurance Lead Ecosystem  

Interoperability drives efficiency

Across our industry, we need to find ways to drive efficiency gains by making data more portable between core systems. If premium is scarce, then finding ways to eliminate waste in the system is not just how you save money, but rather how you make it.

Consider this: How much time do analysts spend keying information into different systems of record? Or, underwriters for that matter. Now, think about how much that costs your business. According to McKinsey, underwriters spend 30% to 40% of their time on administrative tasks like rekeying data or manually executing analyses. It’s inefficient and redundant and increases the risk of error, yet it’s a standard in our industry across every insurance workflow. This creates a massive amount of waste.

Now, imagine if analysts could pass exposure data seamlessly from system to system —with just the push of a button. We work with clients to perform these types of integrations all the time at SpatialKey. Core systems must talk to each other so that insurers can reap efficiency gains while leveraging the best that each chosen provider has to offer. Modern technologies and well-designed solution architectures allow us to integrate disparate value-driving systems easily—and the only thing in our way is us!

The market is advocating cooperation for the greater good. There will be more commercial opportunity and innovation generated through “coopetition” than by trying to knock each other out of the market. Solutions providers must find ways to differentiate that aren’t in opposition to the industry they serve.

Interoperability is “perfectly possible”

You may think it’s not possible—that the type of interoperability I’m advocating for requires too much change. To quote Dickie Whitaker of Oasis: “Don’t think it’s impossible, because it is perfectly possible.” He goes on to say at a climate change conference last year: “What’s important in solving these big problems is not to be beholden to our existing culture. Our existing view. Our existing experience. We’ve got to look to others that may be able to reframe the problem in a way that actually gives us insight into solving [it].”

So, if you’re not leveraging or supporting creative partnerships and ecosystems, perhaps it’s time to consider that they present a “perfectly possible” path to interoperability.

See also: Building Ecosystems Requires Guts  

Let’s make the open ecosystem dream a reality

We’re in an era where your solutions are only as powerful as your connections. Interoperability is the name of the new game. We must make systems do a better job of talking to each other. Doing so is a step change for the industry. And, while an open ecosystem may appear to be a dream, it’s already well on its way to reality. Like we’re seeing with Lloyd’s and elsewhere, purposeful change happens when the status quo is no longer sustainable.

It’s time to reach out to your partners and tell them what you need to be successful. Discuss your requirements for interoperability. Drive change that inspires innovation. Edward de Bono, an authority on creative and “lateral” thinking, said, “The system will always be defended by those countless people who have enough intellect to defend but not quite enough to innovate.”

Will you defend the status quo or innovate the future? The choice is yours.

Why to ‘Open-Source’ CAT Models

Some thought that my previous article, “How to Vastly Improve Catastrophe Modeling,” advocating an “open-source” approach to cat models that would aggregate all human knowledge at any point in time, was  anarchist and pacifist in the tradition represented by beauty-contest participant Gracie Lou Freebush of the movie “Miss Congeniality” in her pursuit of “world peace” and sundry such altruistic ends.

Some felt I was preaching from the pulpit, asking sinners to atone. Others praised the article. Some people challenged the article by saying cat models platforms from private providers were important for insurers building entry barriers and maximizing profits. Surely, maximizing profits is a fair goal.

But let us examine the issues here. Just because a particular private provider has better models than others today for specific regions and perils, does that mean that it will remain better than other models from newer providers over time? At the least, just as with the “iPhone, Apple-app and app-store” ecosystem and “android-phone, android-app and app-store,” there need to be multiple options to ensure that we stay on the cutting edge of innovation.

The insurance industry needs to see competition between competing innovation ecosystems, so that newer and better model-providers have multiple options to fairly make more money from their innovations, thereby improving the fidelity of models used by insurers at all points of time. Essentially, a simple choice of allying with one platform vendor for all time is not a good choice for any insurer, and insurers need to “follow the models” to make their money. So encouraging platform providers that might be more attractive for the newer and better model providers is in the best interest of all insurers. Other choices are not as enlightened as they might seem.

Some insurers are paying and supporting a particular private provider to construct a platform owned and operated by that provider in exchange for joint competitive advantage. The OASIS approach I recommend, on the other hand, is an attempt by a group of insurers (with some overlap to the other group) to construct a platform owned mutually by these insurers (and available to new joiners). Perhaps there is space for even more types of ecosystems so that there is competition to draw in the best models as well as to fit the “empire-building” objectives of some insurers.

The competitive advantages to insurers could come from being part of a closed/semi-open group owning the platform or getting competitive advantage through it in some way. But competitive advantage could also come through innovative relationships between insurers and model providers (dis-intermediating the platforms in some sense), just like the Internet-applications industry does not care about the telecommunications industry that provides the channel to market. That is the most likely outcome when the dust eventually settles. After all, while the laws of majority do not work in the matters of the truth (fidelity of models to underlying reality), no one person/provider has a monopoly over the truth (of models), and in the end it is the truth (of the models) that matters (in conferring lasting competitive advantage).

Insurers tend to spend upward of 20% of their IT budget on catastrophe modelling. This expenditure is expected to rise rather than fall. OASIS is an strategic catastrophe modelling option for insurer looking to reduce this expenditure. One of the strategies is to use OASIS for development, testing and usage of their own models (i.e. in their own infrastructure) rather than risk placing these into the cloud provided by a private platform provider. Used this way, OASIS can help reduce the cost of development and testing and usage of internal models. Also, insurers need to create and maintain their own applications for multi-model comparison and blending if they want to use OASIS along with private platforms. These kinds of strategies will drive down the average cost of catastrophe modeling in the enterprise and the industry, thereby improving the transformative business case for various uses that currently are not cost-effective. Insurers that start on the OASIS journey will reach these transformative business cases before than others.

How to Vastly Improve Catastrophe Modeling

The OASIS loss modeling framework is an important initiative for the humans standing last in the global queue. To see why, look at the problem that all we humans face:

At a global level, the ideal catastrophe modeling process should leverage all the scientific knowledge available to humanity at all points of time to come up with the best estimate of a probability distribution of losses for various horizons of locations and time so that humans and groups can make better choices. The actions of some humans are changing the Earth and its environment (through global warming, climate change, et al.) at a much more rapid rate than before. Along with other natural changes, these human-triggered changes and the increasing knowledge of humanity result in changes in the estimated distribution over time.

The insurance industry uses catastrophe models provided by an oligopoly of closed source private providers, causing the following problems:

  • The cost of catastrophe modeling is higher than it would be if there were no oligopoly.
  • The opaqueness of the models prevents transparent evaluation/comparison/regulation.
  • Vested interests may manipulate models and (thereby) choices made by humans and groups.
  • The oligopoly makes it difficult to leverage all scientific knowledge in estimating distributions.Because all humans live on the same Earth, and actions of some empire-building humans are changing the loss distribution for other humans without the latter being aware, it is necessary to make information about the global loss distribution as widely available as possible, so that maximum humans or their representatives can transparently make better choices for themselves (including preventing actions by the empire-builders). As the pace of change of the distribution accelerates, this is becoming more and more urgent.

Unfortunately, humans and groups who stand last in the global queue, as usual, are most vulnerable to impacts of actions by those ahead of them in the global queue. They are usually least aware of this distribution and risk making poorer choices than others.

Why don’t property insurers share the distribution of potential losses at home location with property owners periodically? Why don’t property surveys commissioned by property owners provide the distribution of potential losses at property locations? Why should property owners not be able to understand how specific new local actions by local people, firms and governments affect their loss distributions over various time horizons (thereby affecting property values)? Why don’t property insurers provide complimentary/paid information services about the risk (overall or event-specific) to the properties? Property owners/managers, their creditors and their investors would all be interested in such services, because they have a financial stake in the properties.

The high cost of catastrophe modeling has been a constraint. But as OASIS reduces this constraint, we should see such services. After all, insurers are in the business of helping their customers manage risk rather than the business of selling insurance policies. (See my other blog post on this.)

Empire-building humans always seek to manipulate public perceptions about the true consequences of their actions (product/services) over distant time and space horizons. As scale and complexity of technology has grown, the impact for humanity has become difficult to decipher and control. But the need to generate a common understanding of these outcomes has become more critical, because the impact continues to intensify. As a result, there are two imperatives:

1. The transparency of the catastrophe modeling process is very important to prevent empire-builders from manipulating models partly or fully to promote a wrong understanding of the potential outcomes for humanity.
2. Reducing entry barriers for model providers to provide ever better models to the catastrophe modeling process is very important to ensure that global understanding of potential outcomes for humanity is based on up-to-date scientific knowledge.

I have written separately on my other blog about why humanity needs to manage intellectual property that is significant for its future differently from mundane intellectual property. The public or private ownership of intellectual property in the catastrophe modeling domain needs to be managed very carefully. While we need to retain the incentive for private model builders to build ever better models, we need to find a mechanism that does not jeopardize the transparency or build entry barriers for newer models.

It is in this context that OASIS (an open-source catastrophe modeling toolkit and marketplace) provides the right combination of public and private ownership to evolve the ideal global catastrophe modeling process. Choosing OASIS over other private options is important for your children and their children.

I see OASIS as a genuine oasis in this desert where selfish actions of some humans are risking our shared future. If OASIS succeeds in breaking the oligopoly, making it easier to evolve the ideal catastrophe modeling process, I expect the speed of developing global consensus to put the right and tight leashes on empire builders.

I strongly endorse OASIS and wish it luck. I plan to do all I can to ensure its success. I hope you will join me, too.