External Loss Data

Cathy Hampson and Gustavo Ortega

INTRODUCTION

In this chapter, we look at the basics of external loss data and its use for improving operational risk management in the context of the broader operational risk framework. External loss data can help insurance companies inform their operational risk and internal control profile. Similarly, to banking, insurance companies over the past decade have begun to collect internal risk-event data. However, as was the case with banking back in the late 1990s, it is the case today with insurers: there is simply lack of internal risk-event history, so there is an ever-increasing need for external operational risk loss data.

Many insurers are using external loss data today for the purposes of benchmarking and helping with calculating operational risk capital requirements, and also informing operational risk scenarios. External data is also helpful for prompting discussion with business management. It is for this and many other reasons that external data is very useful and forms part of the operational risk-management framework.

WHAT IS EXTERNAL LOSS DATA?

By definition external loss data signifies operational risk losses suffered by financial institutions, and it is