16 // THE DISASTER GAP: HOW INSURERS AND THE CAPITAL MARKETS CAN HARNESS BIG DATA TO CLOSE THE GAP


The emergence of big data technologies and methods has supported the development of new models by providing two fundamental capabilities: data management platforms and advanced data analytics.


– Big data management platforms (for example, those based on open source concepts like Hadoop and MapReduce) allow firms to ingest and store large quantities of data at a lower cost than traditional platforms. At the same time, they support the loading of near-real time data and the integration of traditional structured quantitative data with unstructured data such as news feeds, documents, web and social media feeds, and more.


– Advances in data analytics have allowed firms to leverage the information on their big data platforms in new ways. The growing adoption of big data has driven advancements in fields such as machine learning, data visualisation, and natural language processing. These analytic techniques allow us to explore structured and unstructured data and to derive meaning and recognise patterns in ways that were previously very difficult.


Rather than relying on outside agencies for model development, firms that effectively leverage big data to create a decision science ecosystem will be able to quickly and iteratively test and refine models. This will foster innovation, because concepts for new models can be developed, tested, and revised (or abandoned) more rapidly and at a lower cost. Big data and Decision Science will be key weapons in the race to develop alternative models that let market participants access non-traditional risks.


CASE STUDY: BIG DATA IN HEALTHCARE


Some of the biggest strides in big data have occurred in the healthcare sector. In hospitals there is a clear need to better detect subtle warning signs of complications and doctors need to gain greater insight into the moment-by- moment condition of patients.


Today, patients are routinely connected to equipment that continuously monitors vital signs such as blood pressure, heart rate and temperature. The equipment issues an alert when any vital sign goes out of the normal range, prompting hospital staff to take action immediately. But many life-threatening conditions do not reach critical level right away.


Often, signs that something is wrong begin to appear long before the situation becomes serious. But even a skilled and experienced nurse or physician might not be able to spot and interpret these trends.


In an effort to better spot early warning signs a three-way collaboration was set up between the University of Ontario Institute of Technology, the Hospital for Sick Children in Toronto and IBM. The result was Project Artemis, a highly flexible platform aiming to help physicians make better, faster decisions regarding patient care for a variety of conditions.


The system’s outputs are based on algorithms developed as a collaboration between the clinicians and programmers. It alerts hospital staff to potential health problems before patients manifest clinical signs of infection or other issues. These early warnings give caregivers the ability to proactively deal with potential complications – such as detecting infections in premature infants up to 24 hours before they exhibit symptoms.


CASE STUDY: MEXICO’S MULTICAT BOND


Mexico is vulnerable to numerous natural hazards including hurricanes, earthquakes, floods and volcanic eruptions. It has a history of deadly earthquakes. In 1985 the magnitude 8.1 Mexico City caused serious damage to the nation’s capital and is thought to have killed 10,000 people.


A number of transactions in recent years have transferred windstorm and earthquake risk to the capital markets. In 2009, the World Bank’s MultiCat was used to issue a cat bond on behalf of FONDEN, the Mexican Fund for Natural Disasters. The deal saw FONDEN enter into an insurance contract with state-owned insurer Agroasamex SA to provide protection against earthquakes and both Pacific and Atlantic hurricane events on a parametric basis. In 2012, Mexico issued MultiCat 2012 as a successor, with a larger coverage area and much more detailed structure than the 2009 transaction.


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