Actuarial Risk Assessment
A well managed business understands the risks to which it may be exposed and manages them on a daily basis. Organisations finance these risks by either retaining or transferring them and insurance remains a key risk transfer tool. However, buying too much insurance may result in inefficient use of capital; buy too little insurance and an organisation may place its financial viability in jeopardy.
So what is the right balance between risk retention and risk transfer? Aon’s Actuarial & Analytical services team has the capability to provide detailed analysis to help you make an informed decision around your organisation’s optimum risk financing strategy.
Aon’s Actuarial & Analytical Services can assist your organisation in the following areas:
- Understand your risk tolerance and appetite - Your organisation’s financial strength can be used to assess whether higher or lower insurance deductibles should be considered. In addition to risk tolerance your desire to accept risk (risk appetite) will also be explored
- Forecasting retained losses and optimising insurance programmes – Applying quantitative techniques consistent with actuarial methodology to historical losses allows losses to be forecast for the forthcoming policy year. The average, volatility and higher confidence levels of retained losses can be calculated for the current insurance program and any alternative insurance programmes. Once forecast losses are combined with premium quotes an organisation can identify its most cost effective insurance programme
- "Worst case" scenario analysis – Knowing what limit of liability to purchase can sometimes be a bit of guess work. However, an analysis that understands the different insurable consequences of a worst case’ scenario and simulates the financial impact using Monte Carlo sampling techniques can show the overall financial impact of a scenario at various confidence levels. This process provides some science to selecting appropriate limits of liability
- Reserving for unpaid losses – If your organisation retains or self insures a significant portion of risk (including captive and managed fund retentions) you will have a need to understand your existing liabilities, how much of this is yet to be paid and what amount needs to be set aside now to pay for those liabilities as they are settled in the future. An Outstanding Loss Provision analysis quantifies this amount and assists in the preparation of financial reports and meeting audit requirements
- Premium allocation – The design and implementation of complex models can assist with allocating premiums appropriately across different business units within your organisation.