Operational Risk Solutions

Operational Risk Solutions (ORS) is an extension of the Financial, Executive and Professional Risks (FINEX) broking team. The team helps firms of all sizes to enhance their operational risk framework for new, existing and emerging risks and manage projects that include operational risk assessment, exposure gap analysis, statistical modelling, model validation and insurability analysis.

Each client project is unique but frequently based around the following core capabilities, always supported by our proprietary databases.

Risk Framework Development

Operational Risk Solutions can support the development and enhancement of a client’s specific risk framework by mapping key risks to actual loss events suffered by firms with similar business characteristics. Risk gaps can then be identified to better inform understanding of the risks faced.

In addition, Operational Risk Solutions can support quantification of risks through a scenario-based approach to provide a forward-looking aspect to the client’s risk profile. Review and quantification of risk profiles is supported by detailed analysis of our proprietary databases.

Benefits

• Deeper understanding of the risks faced by the industry
• Risk profile reviewed by an external expert
• Backward and forward-looking approach to operational risk through access to historical data to support the development of risk scenarios

Insurability Assessment

Not all risks are insurable; the optimal insurance limit is sufficient to cover the insurable aspects of a firms risks. You can look at insurability of risk from two angles:

Qualitative – what is insured. We map a client’s key risks to their current insurance wordings, clearly outlining how insurance would be expected to respond and where changes to wordings or new policies would increase coverage.

Quantitative – how much is insured. Each risk may have insurable elements (e.g. compensation to third parties) and uninsurable elements (e.g. fines). We calculate the percentage of each risk that is insurable. This quantitative insurability is used to set optimal insurance limits.

Benefits

• Better appreciation of the extent to which operational risk can be mitigated by insurance
• Knowledge transfer to enable clear rationale and justification of recommended insurance structure

Insurance Programme Optimisation

The optimal insurance structure is a complex function of risk appetite, risk mitigation and cost.

A client should buy enough insurance to cover it’s risk profile; buying too much is a waste of premium whilst buying too little exposes the client to increased risk. We work with clients to link their insurance buying strategy to their risk profile, taking into account the insurability of their risks, their risk appetite and the cost of insurance.

Benefits

• Optimal insurance limits / deductibles based on operational risk profile
• Enhanced cost-benefit analysis – Calculate operational risk exposure net of insurance to show the financial benefit of different insurance structures given the cost of insurance
• Deductible structuring within risk appetite – The ability to see how changing deductibles impact the retention of different parts of the business
• Audit trail – Knowledge transfer to enable clients to demonstrate clear rationale and justification of recommended insurance structure

Regulatory/Economic Capital Model Development

Operational Risk Solutions can support the development or validation of an economic / regulatory capital model using our proprietary data combined with a client’s own internal loss data.

The insurance purchased can subsequently be factored in to achieve capital mitigation.

Benefits

• Control and ownership of regulatory / economic capital model supported by Willis Towers Watson
• Bespoke model that incorporates insurance to better reflect a client's actual risk profile
• Economic/ regulatory capital relief through the inclusion of insurance in internal model
• Capital model in line with industry best practice and leading regulatory requirements

Improve your Operational Risk Management

For more information and to understand how Willis Towers Watson can assist with improving your operational risk management, please reach out to any member of the team listed under Contacts.

Disclaimer

Willis Towers Watson offers insurance-related services through its appropriately licensed and authorised companies in each country in which Willis Towers Watson operates. For further authorisation and regulatory details about our Willis Towers Watson legal entities, operating in your country, please refer to our Willis Towers Watson website.