RFDP uses a three-pronged approach, linking:
* actuarial risk modelling – creating loss models for traditional insurance risks (EL, property and political risks etc) and enterprise risks (supply chain, employees, cyber etc);
* financial analysis – looking into a company’s financial plans to grasp how much risk the company is able to retain and to see how loss scenarios can impact a company’s key performance measures;
* program design and stress testing – reviewing risk transfer strategies through modelling of the current program and alternative options, which results in cost of risk savings on a like for like basis.
Following the analysis, companies can view how the total cost of risk could be split differently with cost/benefit analysis for each of the potential insurance options. At the same time, the platform produces a report that can be shared with board to justify insurance decisions and keep in line with corporate governance.
Martin Massey, head of business development at Aon Global Risk Consulting, said: “We’ve used the platform for over 50 clients in the US and on average, by linking actuarial modelling to company financials and the risk transfer marketplace, we’re seeing our clients save between 5-15% on their total cost of risk.
“The RFDP process helps support the risk manager both in providing a framework to evaluate strategic alternatives but also in justifying to its stakeholders that its risk financing program adds value and is cost effective.”
* Whilst every business will define its total cost of risk in its own way, all are ultimately aimed at measuring the fundamental cost that risk represents for a business and should include: the cost of retaining risk, the cost of transferring risk (through instruments such as insurance) and the expenses associated with risk management. This should be achieved without significantly increasing volatility.