Staggering amounts of data are created every day, giving organizations an unprecedented opportunity to better understand their risks and develop decision-making frameworks for risk finance and other mitigation investments. But collecting data is merely a first step — it is the way that organizations analyze the information and leverage insights that will differentiate them from competitors and help hone their business strategies.
Effective use of data and analytics is still considered a pain point by many, as shown by the 2019 Excellence in Risk Management report. In fact, improving the use of data and analytics was the top focus area respondents noted for developing their risk management capabilities — as it has been every time we’ve asked this question starting in 2013.
Deeper insights can lead to new opportunities for organizations. However, without a proper analysis of their overall risk portfolio, and an understanding of emerging risks, how can business leaders make the best decisions?
A quarter of respondents listed data and analytics as a major obstacle to using various alternative risk transfer solutions. Among other challenges, those that aren’t effectively marshalling new data and risk analysis might be missing risk finance opportunities presented by alternative risk finance methodologies, such as parametric insurance policies and integrated risk programs.
A related stumbling block is the lack of understanding regarding these solutions. This pain point was especially pronounced among C-suite respondents, 48% of whom said they don’t understand how alternative risk transfer (ART) products work. About half also said they cannot make decisions about its use without learning more. Risk managers seem to be more knowledgeable about alternative solutions, with only 18% saying they don’t understand how ART products work. However, a third of risk professionals responding to the survey cited explaining the benefits to others within the organization as a main obstacle.
These challenges show us that there is ample opportunity for organizations to derive more value from ART solutions. For that to happen, risk management executives and advisors will need to bolster their own knowledge of existing alternative solutions to help others within their organizations understand how these alternative approaches could fit within their risk finance strategies.
This reinforces the importance of sound data and analytics, which will be instrumental in determining the effectiveness of existing insurance portfolios and where an organization’s risk management strategy and risk finance can be enhanced through the incorporation of ART solutions. Thus, it is heartening that organizations continue to recognize the need to improve their risk data and analytics, which can help provide risk executives and the C-suite with forward-looking insights to support their organizations’ business strategy decisions, including the role of alternative solutions within their portfolio.