As risk events unfold at varying speeds and complexities, organizations can get blindsided by prior experience, confirmation bias, or simply by not seeing risks. The ability of businesses to expect the unexpected, accurately assess their potential impacts, and implement effective mitigation measures has never been more key to achieving resilience.

Some risk managers rely on benchmarking when making important insurance program design decisions. However, benchmarking has its shortcomings, particularly as every business has different levels of risk exposures and risk tolerance, which may not align to their business strategies. 

Furthermore, with rising insurance costs and complexity, business stakeholders and senior management are applying greater scrutiny to the performance of their insurance programs. Risk managers are therefore increasingly challenged to provide quantifiable support for their insurance and risk decision making. 

Why Risk Finance Optimization?

With emerging, complex and rapidly evolving challenges, you need more than a historical view to manage risk, allocate capital and achieve results.

A robust approach to designing and optimizing your risk management strategy is to perform a Risk Finance Optimization (RFO). This is a tailored data-driven exercise which answers program structure queries and identifies the most economically efficient means to finance your risks. 

RFO gives you an edge by assessing these questions and more: 

• Will a higher deductible breach our risk tolerance level?
• Are my policy limits sufficient? How volatile could my losses get?
• Are the quoted premiums value for money?

The 5-step Approach Answering These Questions

Expected Benefits and Outcomes

• Potential for significant cost savings to your Economic Cost of Risk 
• Deeper understanding of your risk profile and risk financing trade-offs
• Measurement of the economic value that insurance delivers
• Explore alternate risk retention and transfer options, e.g. deductibles, limits, captive solutions.

Why Marsh Advisory?

Marsh Advisory’s Analytics Solutions team has deep experience with the RFO process. We are a dedicated actuarial team in Asia with financial modelling experience across more than 20 industries and have provided RFO solutions to benefit over 200 organizations since 2019. 

A Case Study

Amidst a hardening market, a multinational electronics contract manufacturer was quoted with sharply increased Property Damage and Business Interruption renewal premiums under their existing program structure. Our Analytics Solutions team ran an RFO study to determine the optimal renewal deductible structure under current market conditions. Our analysis identified over 6% in expected savings to the ECOR through a 2.5 time increase in deductibles within the client’s acceptable risk tolerance level.