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Risk Finance Optimisation

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Are you maximising the efficiency of your insurance programme?

Through Marsh’s propriety Risk finance optimisation (RFO) analytics framework, we support our clients in identifying the optimal blend of risk retention and risk transfer within their insurance programmes. RFO supports decision-making regarding efficient attachment points for insurance and appropriate limits of indemnity; all in the context of an organisation’s projected insurable losses, costs of capital, risk tolerance, and insurable risk appetite.

RFO seeks to help your organisation answer three key questions:

  • How much financial protection do we need/want insurance to provide?
  • Does our current insurance programme therefore provide sufficient protection; in the context of forecast losses, our risk tolerance, and our insurable risk appetite?
  • Can we optimise the structuring of our programme structure to deliver maximum insurance efficiency?

Increasingly, organisations base their insurance purchasing decisions on more than purely the premiums paid to insurers – also factoring in some estimate of the losses they will retain each year within policy excesses or deductibles. This generates a Total Cost of Risk (TCOR) view, but does not necessarily consider the notional costs of having to fund unexpected or uninsured losses with your own capital. We capture this important, but more difficult to quantify cost as a component within our proprietary Economic Cost of Risk (ECOR) metric.

Optimised Insurance Programme

1 Risk Tolerance and Insurable Risk Appetite

  • Understand key insurable risks, stakeholder perspectives, and objectives.
  • Calculate risk tolerance.
  • Determine insurable risk appetite.

2 Annual Loss Modelling

  • Analyse client loss data.
  • Supplement with industry loss data.
  • Develop loss scenarios.
  • Build actuarial models to project insurable losses at various probability thresholds (e.g. annual average losses, 1 in 20 year losses, etc.).

3 Insurance Programme (Re)design

  • Determine overall risk financing strategy.
  • Understand appetite of insurance market.
  • Consider contractual and/or regulatory obligations.
  • Develop alternative insurance programme structures.

4 Identify Optimal Programme

  • Overlay insurance market pricing.
  • Calculate total cost of risk and economic cost of risk.
  • Identify optimal balance between risk retention and risk transfer.

RFO is a collaborative alignment of Marsh’s actuarial expertise and insurance market insight with your own business and risk financing strategy. As illustrated above, prior to any actuarial analysis the earlier stages of an RFO Study involve consultation with key stakeholders from your organisation to assess your financial ability and willingness to bear insurable risk, as well as broader perspectives and strategies for insurance. Combined with input and challenge from our own placement brokers on the appetite of the insurance market, this ensures that the RFO outputs compiled by our actuaries are actionable at renewal of your insurance programmes.

Bespoke Loss Modelling to Support Strategic Decision Making

Our preferred approach is to build bespoke loss models for each RFO Study; deploying the skill of our actuaries to work with an organisation’s own historical data which is then supplemented with Marsh’s wealth of industry data. This acknowledges the importance of differentiating each organisation’s bespoke risk profile, whilst acknowledging the need to capture the potential for loss events outside of historical experience. Where required, modelling inputs and assumptions are ratified with key business stakeholders and our own industry experts to ensure truly tailored outputs.

Depending on the nature of an organisation’s own risk profile and specific requirements, RFO analysis can be founded almost entirely on Marsh’s industry loss data.

Blue[i] RFO Analytics

We present the findings of RFO analysis within detailed reports, to support your audit trail regarding insurance decision-making, and in our new Blue[i] RFO Analytics online platform. Blue[i] RFO Analytics enables you to interact with the outputs of RFO analysis independently and in real-time, taking RFO off of the page and into strategic risk financing discussions, across your portfolio of risk.

Key Contacts

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Angela Baker

Marsh Analytics Solutions Leader, UK & Ireland

  • United Kingdom

Bradley Saunders

Bradley Saunders

Analytics Development Leader

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