Lowering cost of risk for the Asia manufacturing industry

Increasing premiums and narrowing terms amid a complex risk landscape pose immense challenges for companies at insurance placement and renewal. These can be addressed by adopting strategic solutions such as Marsh’s Risk Finance Optimization to minimize economic cost of risk, protect liquidity and cash flow, and maximize overall profitability.

While insurance is traditionally the most common approach to risk mitigation among manufacturers in Asia, increasing premiums and narrowing terms amid a complex risk landscape pose immense challenges for companies at placement and renewal. These challenges can be addressed by adopting strategic solutions such as Marsh’s Risk Finance Optimization to minimize economic cost of risk, protect liquidity and cash flow, and maximize overall profitability.

The role of Risk Finance Optimization in manufacturing risk management

The role of Risk Finance Optimization (RFO) in manufacturing risk management was put into context during the ‘Shape Your Risk Management Strategy in Manufacturing’ webcast. While crisis management, process optimization, business continuity planning, and insurance are risk management and mitigation methods for manufacturers, Marsh RFO goes one step further by providing data-driven insights on risk, such as pinpointing the exact size of coverage gaps and highlighting where potential cost savings from insurance program restructuring can arise.

What is Risk Finance Optimization and how does it lower economic cost of risk?

Marsh’s Risk Finance Optimization is a data-driven assessment designed to enable companies to identify ‘best fit’ alternative insurance programs and risk financing structures. 

These insights are made possible through our expertise in analyzing our clients’ and industry data. Marsh uses both internal and external data, including our proprietary Global Loss Data Library, to determine which risk financing or insurance structure can work best to reduce a company’s cost of risk and risk exposures, compared to the current structure.

Crucially, the data-driven RFO process eliminates decision-making biases based upon inaccurate or misguided perceptions on where risks and exposures lie (exposure gaps), and the extent of these risks and exposures (coverage gaps). These common biases may lead to cost inefficiencies in insurance coverage and, in the worst cases, uninsured losses arising from coverage and exposure gaps.

With RFO’s quantitative approach, companies can gain greater clarity into economic cost-of-risk figures and obtain quantified assessments of the reduction in the economic cost of risk for different insurance structures. From here, actions can then be taken to reconfigure or procure coverage in a manner that can potentially create additional value for the business.

Risk Finance Optimization: The five-step approach and questions answered

Expected benefits and outcomes of Risk Finance Optimization:

  • Potential for cost savings to your economic cost of risk 
  • Deeper understanding of your risk profile and risk financing trade-offs
  • Manage volatility and take risk tolerance into account
  • Explore alternate risk retention and transfer options, e.g. deductibles, limits, captive solutions

Aside from identifying best-fit program structures, the RFO process is further complemented by Marsh’s long-standing underwriter partnerships, which help companies find and access insurance solutions for an extensive spectrum of risks in the market, gauge fair premium pricing for risks to be transferred in a cost-efficient way, as well as unlock the capacity needed to cover higher-impact risks.

How manufacturing companies in Asia can benefit from Risk Finance Optimization

With its data-driven framework for analyzing and quantifying risks, the Risk Finance Optimization process offers manufacturers valuable insights and the opportunity to further extend their competitive and capital advantages beyond existing strategies and practices. As conveyed in the webcast, the RFO process is also highly relevant and timely for manufacturers in today’s hardening insurance market, especially among certain sectors where bottom lines are coming under increasing pressure.

In a hardening insurance market, manufacturing companies may find that they are no longer able to rely on past performance and relationships with insurers to renew coverage at existing terms. The complexity of the risk landscape for manufacturers means that they are exposed to an array of risks that may be difficult to quantify and manage without the technical expertise and access to industry claims data that the RFO process leverages.

In particular, RFO can prove essential for manufacturing companies with overseas/multi-market exposure or expansion plans. These companies have ever-changing risk profiles and typically have high exposure to third party and liability risks. Under these circumstances, a RFO exercise can identify the optimal level of insurance coverage and possible best-fit program structures as manufacturers scale up.

Amid the multitude of challenges that manufacturers in Asia are facing, Marsh’s RFO solution can help companies make better risk decisions, obtain cost-effective protection against emerging and extreme risks (e.g. cyber risk), and connect the dots between risk management and operational strategy—all of which are instrumental for driving bottom line resilience and performance.

To discover how your company can benefit from Marsh solutions such as Risk Finance Optimization, visit Helping Manufacturing Companies Benchmark and Optimize Cost of Risk (marsh.com).

You can also watch the full webcast replay at Shape Your Risk Management Strategy in the Manufacturing Industry - YouTube.