Insurance Program Renewal and/or Restructuring Loss Projections

At renewal time, clients and their brokers/insurance advisors find it valuable to have loss projections from a risk quantification model for the exposures in their program. Using statistical analysis of the client’s loss history, the risk quantification model provides projections of potential losses within various layers of an insurance program. The model allows alternative structures (for example different deductibles) to be explored in an informed manner. The analysis helps to redress the balance in negotiations with underwriters, since the client and broker now have a quantification of the risk that the underwriter is taking in a particular program structure, as well as their own retained risk.

Technically Optimizing Retention Structures

Based on a theoretical cost/benefit analysis using loss projections from a risk quantification model, what is known as the technically optimizing retention structure can be identified. This provides a guideline and benchmark against which to explore program structures in the insurance market place.

Captive Insurance Subsidiary Creation and Development

Analytics is involved with both the establishment of new captives and the development of programs for existing captives. In both cases, quantification of the risk to which the captive is exposed through its underwriting is a crucial element in the decision making process. The output from the risk quantification model provides important input to the business plan and formal licensing application process which is inherent in the establishment of a new captive insurance subsidiary.

For existing captives alternative development strategies, such as the introduction of new covers into the program, can be explored based on a risk quantification model and corresponding financial statement impact simulations. The model results are also used to address premium and capitalization requirements.

Reciprocal Insurance Exchange Creation and Development

The establishment or program development of a reciprocal requires similar risk quantification analysis input as does a captive. Since reciprocals usually apply to groups of organizations, such as an association’s members, the creation of underwriting/pricing and premium allocation methodologies is a particularly important aspect of the service which Analytics offers.

Premium Allocation

In decentralized organizations a clear, transparent and equitable premium allocation methodology is an important risk management tool. The premium allocation can be used to incent desired behaviour and penalize behaviours that the corporation wishes to discourage. Analytics works with organizations to establish what their priorities are for a premium allocation methodology and then creates the framework and models to do that.

Risk Models for Exotic Covers

In situations where no, or insufficient, loss history is available upon which to base statistical models, Analytics uses a simulation approach to create a risk quantification model. This might apply to more exotic exposures such as intellectual property, warranty on new products, rogue trading, environmental exposures, flood, earthquake and other low frequency/high severity exposures. The objective with simulation risk model is to establish a series of input assumptions in the form of ranges. The assumptions are based on research and the views of accessible experts translated into risk model inputs.

Once the risk model is established the same types of decisions on design, structure, pricing and strategy can be addressed as have been described already.