If your organization’s starting point for renewals is referring to what it did last year, or allowing markets to set terms, risk analytics can overcome resistance to change and inertia. By quantifying both the impact of risk and the effect of different risk strategies and execution options, you can achieve improved terms, enhance optimization and a lower TCOR.
This brief insight looks at how to use risk analytics effectively to get more from renewals.
Market perceptions of risk are not always rational and can change daily. Providing insurers with up-to-date, quantified and more compelling views of your risks shifts the renewals process from passive to proactive. To be proactive and use analytics more strategically, you need to engage these capabilities in a timely and agile way.
To yield more favorable results, this process should involve some experimentation and back-and-forth with your broker. Unless you have direct access to risk analytics tools, it could take some time. This means you may need to engage your broker some weeks, if not months, before a renewal is due to ensure you get insight you can act on.
Ask your broker to engage its analytics functions to provide supporting materials that quantify your risks at the time of renewal. This can disrupt insurers' default perspectives and create the conditions for improved terms.
Combining all risks together to take a quantified portfolio view reveals those risks you should be prioritizing at renewal. Using analytics to generate a panoramic view of risk can also uncover where the optimization and efficiency opportunities lie, while also identifying the biggest spends with the most potential to shift the dial on TCOR.
Where are you spending most, not only on risk financing but on retained losses, under the existing arrangement? Does this look like the most efficient deployment of capital or can you devise a better strategy?
Quantitative analyses allows you to consider each risk independently as well as aggregate into a holistic view that focuses not only cost, but also risk and return. Measuring and evaluating all of these together means you can optimize your risk transfer strategy based on data, not qualitative perspectives or gut instinct.
More generally, comparing the total cost of risk year-on-year using risk analytics also highlights the value insurance and risk management is bringing to the balance sheet.
Insurance placements can be siloed, with different teams looking at individual lines, such as directors’ and officers’ and motor in isolation.
Using risk analytics to view these single lines together can encourage collaboration and empower the business to think about its total risk more strategically. This can not only inform your priorities for challenge and disruption at renewal, but align the overall risk strategy with organizational financial metrics.
Making informed decisions around transferring risk and managing the potential capacity shortfalls in the marketplace also means understanding the impact of changing terms and conditions. What happens when you choose different retentions, limits and other policy conditions? For example, you might use analytics to look at the impact of arbitration limits, sub limits, alternative layer pricing, deductibles, higher limits, at all times seeking to draw out the impact on the business’ risk profile and drilling down to the efficiencies available at every layer.
This is about testing assumptions to answer the ‘what ifs’ and working towards greater transparency about the value you may or may not be getting from your TCOR. Putting numbers against the impact of alternate risk strategies enables capital efficiency that can bolster your balance sheet and income statement.
Being able to compare and evaluate insurance structures at any point in the insurance renewal cycle can make the renewals process smoother and more strategic.
Risk evolves throughout the year, so regularly monitoring and quantifying your risks throughout means you’ll be better prepared to evaluate the pricing of quotes and options in the execution process at renewal.
When decision time arises, you’ll have a clearer idea of the efficiency of the capital spend on insurance and the potential impact of possible retained costs not covered by the policy.
For support on disrupting your risk strategy efficiently and effectively, speak to WTW about Risk IQ.