As risk events worldwide unfold quickly with increasing complexity, organisations in Asia are facing significant challenges in optimally balancing risk transfer and retention. To conduct the risk financing process with due diligence, organisations now need to deploy a risk analytics tool that not only pursues least-cost coverage for loss exposures and post-loss financial resource availability, but also identifies and quantifies ‘hidden’ risks that pose severe consequences if left unaddressed.
Is benchmarking sufficient in risk financing?
The first step most organisations take is benchmarking. The key issue is that relying on benchmarking alone to make important insurance program design decisions could result in unidentified risk exposures and exposure gaps.
Furthermore, benchmarking provides guidance only on common market or industry practices, is unable to be tailored to a business’s specific risk profile and tolerance levels, and provides only a historical view while being prone to confirmation bias.
As your organisation’s stakeholders increasingly scrutinise the performance of insurance programs, risk managers need to provide meaningful justification for their insurance and risk decision making (e.g. allocation of capital) in a way that is robust and accurately quantifiable.
Risk Finance Optimisation: An enhanced risk analytics tool
To address the urgent need for an accurate, customisable, and forward-looking risk analytics tool, Marsh developed Risk Finance Optimisation (RFO), a data-driven exercise that provides meaningful and actionable real-time answers to program structure queries and identifies the most cost-efficient means to finance risk at both the portfolio and product line levels.