Insurance
The single most important form of financial risk transfer is almost certainly going to be the purchase of your insurance. The key to efficient insurance is a thorough understanding of an organisation's insurable risks.
Our engineers have years of experience within the insurance industry and have a comprehensive understanding of policy, loss estimation, claims management, and compliance versus risk. Our risk management and engineering services are integrated with insurance decision making.
Setting Policy Limits
Organisations typically set insurance policy limits based on either an educated guess or with reference to what the rest of the market is doing. The rest of the market of course is doing exactly the same thing.
Your business is unique and relying on the guesses of others exposes the organisation and its directors to the consequences of poor decision making. If limits are too high, then the organisation may be paying excessive insurance premiums; if limits are too low then the company could be faced with massive uninsured losses...and very unhappy owners.
At Cirk we recommend a more rigorous approach which assesses the insurable risks profile of an organisation and then simulates a range of potential outcomes using a Monte Carlo risk analysis to establish policy limits - per event and in the aggregate.
The results of the exercise are presented in a risk likelihood curve which allows an organisation to select the limits that matches its overall risk appetite (e.g. 2% chance of exceedance in any one year) and importantly, understand the assumptions in place and the consequences of the resulting decision.
It is a five step process:
The principal objectives (and benefits) of the exercise are:
Our engineers have years of experience within the insurance industry and have a comprehensive understanding of policy, loss estimation, claims management, and compliance versus risk. Our risk management and engineering services are integrated with insurance decision making.
Setting Policy Limits
Organisations typically set insurance policy limits based on either an educated guess or with reference to what the rest of the market is doing. The rest of the market of course is doing exactly the same thing.
Your business is unique and relying on the guesses of others exposes the organisation and its directors to the consequences of poor decision making. If limits are too high, then the organisation may be paying excessive insurance premiums; if limits are too low then the company could be faced with massive uninsured losses...and very unhappy owners.
At Cirk we recommend a more rigorous approach which assesses the insurable risks profile of an organisation and then simulates a range of potential outcomes using a Monte Carlo risk analysis to establish policy limits - per event and in the aggregate.
The results of the exercise are presented in a risk likelihood curve which allows an organisation to select the limits that matches its overall risk appetite (e.g. 2% chance of exceedance in any one year) and importantly, understand the assumptions in place and the consequences of the resulting decision.
It is a five step process:
- Identify the major risks.
- Define the consequences of the risk against corresponding likelihoods.
- Run a Monte Carlo simulation on the risk data.
- Select the preferred limit(s) based on the simulation output.
- Purchase insurance at the most favourable terms.
The principal objectives (and benefits) of the exercise are:
- To quantify the policy limits with an appropriate confidence level.
- To demonstrate that there is rigor behind the setting of limits rather than educated guesswork.
- To document assumptions allowing for transparency of decision making and assessment repeatability.
- To indicate to insurers the likely maximum loss that they face.
- To demonstrate to insurers and others, that you understand your risks.
- To identify potential risk scenarios that are unacceptable to the organisation and must be managed accordingly.