Applying the Industry Exposure Index

We use the industry exposure index in Touchstone Re to adjust Verisk's industry loss curves so that they reflect a country's current building stock.

Users typically generate Verisk industry-insured losses in the application (e.g., Touchstone Re) by entering estimated industry insurance take-up rates as user-specific Industry Exposure Database market shares. When they run a loss analysis against a program set to “Use Specific Industry Exposure Database Market Shares,” the application multiplies these take-up rates by the Verisk industry-insurable loss associated with each event to produce Verisk industry-insured loss estimates. Verisk has prepared a set of UNICEDE/2 files containing user-specific Industry Exposure Database market shares that reflect industry take-up rates scaled by the industry exposure index values applicable to each country. Using these files, available on the Client Portal, users can generate industry-insured losses that reflect the change in the value of the industry building stock since the last update to the country's Industry Exposure Database.

When analyses are performed based on sums insured exposures, the application calculates a ratio by dividing the user-specific Industry Exposure Database sums insured data by the Verisk industry exposures for the corresponding region/line of business and multiplies that ratio by the Verisk industry loss. Because the Verisk industry exposure used to compute market share and the Verisk industry loss against which the market share is multiplied are of the same vintage, applying a loss modification factor to the resultant losses would potentially overstate the impact on modeled losses.

Consider the following example: Assume that the underlying Verisk industry exposure for a given region and line of business is $1,000,000 and the associated Verisk industry loss is $100,000. In a prior year's analysis, the value of the sums insured exposure data was $200,000. In Touchstone Re, this would yield the following loss result: ($200,000/$1,000,000) * $100,000 = $20,000. For the current year's analysis, the sums insured data has increased to a value of $300,000, the underlying Verisk industry exposure and loss have not changed, and Verisk has released an industry exposure index value of 1.5 as a loss modification factor for the given country. Using the updated sums insured data, the loss computation becomes ($300,000/$1,000,000) * $100,000 = $30,000. In other words, the 50% increase in the sums insured data is already directly reflected in the resulting loss estimates due to the nature of the market share calculation. Applying a loss modification factor equivalent to the country's industry exposure index value to the loss computation would incorrectly increase the ultimate loss value by an additional 50%.

When the industry exposure index value is applied properly as a loss modification factor in the application, users can scale industry losses to reflect the change in the value of the industry building stock since the last update to the country's Industry Exposure Database.