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Risk in Context

Need to Up Your Risk Management Game? Analytics Provide an Answer

POSTED BY Claude Yoder Vineri, 31 Iulie 2015

Today’s risk managers are being asked to up their game. As boards of directors devote more attention to risk, they are being asked to rein in exposures with their organization’s key performance criteria in mind. A historical view of risk alone no longer cuts it. Risk managers must provide forward-thinking, strategic insights, seeing around not only the next corner but also the one after that.

So how do risk managers meet the increased demands and seize the opportunities these demands present? In a word: “Analytics”.

Analytics provide a transparent view into your company’s economic cost of risk (ECOR). As opposed to the "static" total cost of risk, which represents insurance premiums, costs of losses retained, and other items such as administrative costs, fees, and taxes, ECOR accounts for volatility, providing a "dynamic" measurement. This more predictive and objective view of risk enables you to evaluate a broad range of risk financing and mitigation options and more effectively deploy your risk management capital and execute strategies.

Here is one example. When a Fortune 500 retail organization underwent a management change, its new senior team wanted a more objective, data-driven evaluation of its insurance program. The company wanted to quantify its risk exposure with dynamic modelling that reflected changes in expected losses, volatility, and premium. Advanced analytics allowed the company to simulate various scenarios that reviewed its own loss history and relevant global claims and loss data.

Through analytics, the company identified data-driven price points and specific changes in its insurance program, such as increasing the deductible levels on its primary liability policies and marketing and moving its lead umbrella. This helped the company save more than a million dollars and improve its program efficiency by 50%.

At a time when senior leaders of organizations of all sizes are closely scrutinizing risk issues and financing, analytics enables you to confidently play a role in guiding your company forward.