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Risk and Insurance Function Enhancement – Insurable Risk Framework

Designing a robust Insurable Risk Framework is crucial to the protection and longevity of any business.
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By Hugh Waggett , 

Advisory Quality and Recall Leader, Marsh Advisory

28/03/2023 · 4-minute read

Designing a robust Insurable Risk Framework is crucial to the protection and longevity of any business. The economic, geopolitical, environmental, and technological challenges that regularly evolve and converge present an incessant stream of threats that organisations must navigate as safely as possible. Insurable Risk Framework offers users a structured approach to the governance and oversight of risk and insurance decisions. This is inclusive of: how risks are identified, assessed, reported, transferred, and the management of third party risk. It is vital to understand the value of a robust Insurable Risk framework and its potency in mitigating the spectrum of risks you may face.

Core Insurable Risk Framework components

There are four core Insurable Risk Framework components that are each of critical importance to furnishing a robust and reliable framework.

Governance and Infrastructure

When providing the foundations for a successful framework as it is critical to ensure there is appropriate oversight. The Board should provide assurance that processes in place and insurance-related decisions are deployed and managed effectively. In part, this relies on a clearly defined insurable risk strategy that is forward-looking and aligned with organisational objectives.

ACTIVITIES TO CONSIDER
  • Providing external technical support and upskilling the Board and senior leadership to improve their ability to challenge and oversee the Insurable Risk Function.
  • Documenting clear procedures for Insurance Placement, Claims Management, Risk Identification, and Contract Review.
  • Carrying out regular reviews of current insurance policies and plotting them against both identified and emerging risks to better understand net exposure and the added value of insurance.
  • Organising risk committees comprised of key stakeholders, with defined terms of reference, to regularly discuss and shape the annual Insurable Risk Strategy.

Risk identification and Assessment

Risk identification and assessment functions best when it is a collective effort, concerns are best raised upwards to be considered and reviewed collaboratively. Organisations should strive to ensure their risk appetite is defined, articulated, and reflected in insurance decisions at all times. Subsequently, this ensures that contractual, reputational, people, and financial risk-taking are adequately informed and alternative risk transfer options are explored.

ACTIVITIES TO CONSIDER
  • Ensuring all employees understand their role in the risk identification and assessment processes and that these are aligned with Board level strategy.
  • Developing a practical risk appetite framework based on the organisation’s strategic objectives.
  • Regularly quantifying, through use of operational data, various loss scenarios for all lines of cover as accurate as is possible.

Reporting and Monitoring

Risk identification and assessment is not a one-off process. It is imperative that organisations carry out consistent internal and external risk analysis. It is also vital that the Insurance Function operates closely to this process and can anticipate changes to major risks.

ACTIVITIES TO CONSIDER
  • Allocating resource to establish an internal communication plan for material changes in risk exposure to be reported and monitored.
  • Developing annual Insurance Strategy reports for the Board to outline future risks and changes to the insurance programme.
  • Refining and monitoring the processes that implement the adaption and resilience measures that are requested by insurers.

Transfer Resourcing

Forming reliable relationships with the insurance market is essential to building an effective insurance programme. Ensuring the Insurable Risk Framework is reflective of leading practices and that high quality, timely, and robust risk intelligence is provided can support successful relationships and build confidence.

ACTIVITIES TO CONSIDER
  • Proactively seeking out market updates to continuously explore the organisation’s evolving risk profile.
  • Regularly reviewing insurer selection by actively comparing and pursuing alternative insurance solutions.
  • Presenting risk and control information to insurers so they understand the organisation’s current risk profile and any significant material changes.

The highlighted components and strategies are fundamental to organisations considering the best practice for designing, implementing, and improving a company’s Insurable Risk Framework. Marsh Advisory provide independent assurance on existing Insurance Frameworks and also design and implement new insurance processes and structures. For more information please contact Marsh Advisory

Contact

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Hugh Waggett

Advisory Quality and Recall Leader, Marsh Advisory

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