It has become increasingly important for companies to
use sophisticated analytics as the basis for risk-financing
decisions. Marsh Global Analytics (MGA) helps our
clients make these decisions, using award-winning tools,
cutting-edge technology, and quantitative risk
management expertise developed over decades of
experience. MGA Risk Economics provides clients with
risk-financing optimization (RFO), which allows
companies to structure insurance programs in the most
economically efficient manner, while also meeting the
risk-tolerance goals of the organization as a whole.
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Marsh Risk Financing Optimization
1. Marsh Global Analytics
Risk-financing Optimization –
Taking Analytics to the Next Level
It has become increasingly important for companies to
use sophisticated analytics as the basis for risk-financing
decisions. Marsh Global Analytics (MGA) helps our
clients make these decisions, using award-winning tools,
cutting-edge technology, and quantitative risk
management expertise developed over decades of
experience. MGA Risk Economics provides clients with
risk-financing optimization (RFO), which allows
companies to structure insurance programs in the most
economically efficient manner, while also meeting the
risk-tolerance goals of the organization as a whole.
Service Highlights
RFO provides a better understanding
of an organization’s risk, substantiates
decision making, leads to innovative
solutions and implementation
strategies, and helps reduce costs. MGA
incorporates leading modeling tools
and the most robust placement and loss
library available to any organization in
the industry, as we dig deep into the data
from your organization and industry. Our
approach draws on data from more than
15 million claims and US$50 billion in
annual premium placements, as well as
robust external data sources. The goal is
to help you better understand your risks,
evaluate your alternatives, and ultimately,
reach the best decisions with the data
and analyses to back them up.
USING ANALYTICS TO
SUPPORT DECISIONS
At many firms, there is an increasing
expectation from senior leadership that
the decisions and proposals presented to
them will be backed up by hard data and
Who it’s for:
•• CFOs, treasurers, and other finance
executives who want to thoroughly
understand risk — including its
volatility — and its implications for
their organizations.
•• Companies that want to improve their
decisions by making the most strategic
use of a variety of data.
•• Risk managers who want to
incorporate analytics into
their insurance and risk management
program strategies and budgeting.
What you get:
•• Data-driven support for your risk
decisions.
•• Analyses geared to your industry and
your firm’s unique position in it.
•• Access to a wide range of tools and
services.
•• An unbiased view of the most
economically efficient means to
finance your risk.
2. thoughtful analysis. MGA’s RFO approach can
support you in a number of areas, including:
•• Understanding your risk tolerance
and how it influences risk-financing
decisions.
•• Making risk-financing decisions at the
portfolio level in conjunction with your
overall business strategies and key
performance indicators.
•• Deciding the point at which it is more
advantageous to make use of an insurer’s
balance sheet as opposed to your own.
•• Using the same approach as insurers to
price your risk, so that you can minimize
your total economic cost of risk.
•• Understanding new and emerging risks
and finding discrepancies between these
risk exposures and their management.
•• Measuring the financial impact that your
overall risk management program has on
your company.
•• Defining opportunities to reduce cost,
lower risk, and increase efficiency.
•• Addressing concerns from board
members, regulators, rating agencies,
and other stakeholders on your approach
to enterprise risk management.
•• Maximizing your firm’s return on
investment in risk management.
RISK-FINANCING
OPTIMIZATION AT
A GLANCE
RFO consists of a five-step process:
•• Step 1 – Risk-tolerance Analysis
This proprietary Marsh methodology
helps answer:
–– How much of a loss is too much for
my organization?
–– How does my risk tolerance guide the
risk-financing decision-making process?
•• Step 2 – Build Loss Distributions
Loss distributions represent the potential
losses associated with particular risks
faced by the company. MGA estimates loss
distributions based on industry-leading
claims data and external data sources.
•• Step 3 – Understand Economic Cost
of Risk (ECOR)
ECOR is based on the loss distribution
derived in Step 2, along with the premium
(if applicable) paid by the company to
finance all, or part of, the risk.
A key component of ECOR is
the “implied risk charge” — this
recognizes that there is a real (though
not obvious) financial cost to an
organization created by the possibility
of unexpected losses (for example,
a catastrophic loss that exceeds
the amount of insurance coverage
purchased). Such unexpected losses
absorb capital. The implied risk charge
represents the cost of capital exposed
to these unexpected losses.
Most companies do not consider implied
risk charges in their quantification of the
cost of risk when they make insurancepurchasing decisions. Insurers consider
implied risk charges in their pricing
however, and therefore, it is important for
companies to recognize this as they seek to
optimize their own risk-financing decisions.
MGA uses sophisticated simulation
tools to simulate tens of thousands of
potential loss outcomes based on the
selected loss distributions in order to
quantify ECOR.
•• Step 4 – Design and Evaluate
Alternative Structures
By quantifying the ECOR for various
alternatives, Marsh can help companies
choose the most economically efficient
risk-financing structure.
•• Step 5 – View Structures in the
Context of the Overall Portfolio
RFO can be performed both on an
individual risk basis and across the
full risk portfolio (insurable and
uninsured risks). The portfolio view
allows companies to optimize their riskfinancing decision made in light of the
organization’s overall financial goals and
level of risk tolerance.
MGA Services
include:
•• Risk-financing optimization.
•• Enterprise risk management.
•• Predictive modeling.
•• Portfolio risk analysis.
•• Specific risk quantification.
•• Risk-tolerance analysis.
•• Risk-bearing capacity thresholds.
•• Decision-tree analysis.
•• Natural catastrophe modeling.
•• Real-time, on-demand benchmarking
reports.