Downloaded 21 times
Uploaded byRMS
Owning Your View of Risk in a Changing Market
The document discusses the importance of 'owning your view of risk' in a changing market, emphasizing the need for businesses to understand their unique risk profiles and establish effective risk management practices. It outlines the components necessary for building a comprehensive view of risk, including data analysis, correlation, and business parameters. The document also highlights the benefits of this approach for risk selection, pricing, and overall business performance.
Owning Your View of Risk in a Changing Market
- 1. 1Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 OWNING YOUR VIEW OF RISK IN A CHANGING MARKET Mark Cravens – Vice President, Professional Services December 10, 2015
- 2. 2Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 AGENDA CONCEPT IMPACT ELEMENTS PROCESS What does it mean to “Own Your View of Risk”? Benefits of enabling your view of risk Key components in building a view of risk practice Building, evolving, and refining your practice
- 3. 3Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 Introduction
- 4. 4Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 WHAT DOES IT MEAN TO OWN YOUR VIEW OF RISK? Know Your View Understand your unique business attributes Clarify and prioritize goals and challenges Identify practical and effective risk and business management options
- 5. 5Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 WHAT DOES IT MEAN TO OWN YOUR VIEW OF RISK Own Your Risk Establish a practice to quantify, qualify, and manage risk, uncertainty, and volatility – Information development – Analytical and empirical – Interpretation and synthesis Respect and reflect the variances in prospective business behavior
- 6. 6Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 Oakland Firestorm 1991 Insurance Loss: $2.9 billion (2014 dollars) Source: Aon Benfield Exposure concentration | Economic variance
- 7. 7Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 Northridge Earthquake 1994 Insurance Loss: $24.4 billion (2014 dollars) Vulnerability | Unexpected losses Source: Insurance Information Institute
- 8. 8Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 World Trade Center 2001 Insurance Loss: $43.4 billion (2014 dollars) Clash | Information response Source: Insurance Information Institute
- 9. 9Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 0% 5% 10% 15% 20% 25% 30% -15% -10% -5% 0% 5% 10% 15% 20% RoE in Extreme Catastrophe Years (‘01, ‘04, ‘05, ‘08, ‘11, ‘12) RoEinMildCatastropheYears (‘00,‘02,‘03,‘06,‘07,‘09,‘10) Performance vs. Catastrophe Risk Superior risk-reward performance Below-average performance in benign years Below-average performance in bad catastrophe years DEMONSTRATED VALUE
- 10. 10Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 ELEMENTS OF A VIEW OF RISK Data Development, detail, consistency, exceptions Quality Extension/Integration
- 11. 11Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 ELEMENTS OF A VIEW OF RISK Data Development, detail, consistency, exceptions Quality Extension/Integration Exposure Hazard/Risk Prospective behavior Accumulations
- 12. 12Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 ELEMENTS OF A VIEW OF RISK Data Development, detail, consistency, exceptions Quality Extension/Integration Correlation Perils/Events Contingent risk Clash Exposure Hazard/Risk Prospective behavior Accumulations
- 13. 13Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 ELEMENTS OF A VIEW OF RISK Data Development, detail, consistency, exceptions Quality Extension/Integration Correlation Perils/Events Contingent risk Clash Volatility Sensitivities/Variability Uncertainty Business parameters Exposure Hazard/Risk Prospective behavior Accumulations
- 14. 14Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 ELEMENTS OF YOUR OWN VIEW OF RISK Data Exposure Correlation Volatility All insurance carriers have unique business dimensions… – Underwriting appetite – Distribution channel – Producer relationships – Coverage forms – Pricing approach – Large loss(es) influence – Claims settlement approach
- 15. 15Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 EXAMPLE APPROACH TOWARDS OWNING A VIEW OF CATASTROPHE RISK Stage 1: Current State Data and quality Exposure management Modeled risk Stage 2: Initial View Underwriter experience Expert opinion (e.g., modeling companies) Historical industry findings Stage 3: Additional Analyses Claims analysis Sensitivity tests Multiple models VIEW OF RISK
- 16. 16Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 EXAMPLE APPROACH TOWARDS OWNING A VIEW OF CATASTROPHE RISK Stage 1: Current State Data and quality Exposure management Modeled risk Stage 2: Initial View Underwriter experience Expert opinion (e.g., modeling companies) Historical industry findings Stage 3: Additional Analyses Claims analysis Sensitivity tests Multiple models VIEW OF RISK Business Benefits Risk Selection and Pricing | Capacity Management | Post-Event Insight
- 17. 17Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 INVESTING: ENABLING BUSINESS GOALS GOAL: Access better business more efficiently DATA EXPOSURE CORRELATION VOLATILITY Identify superior risk profiles more rapidly Establish criteria to drive target portfolio performance Reduce potential for surprises
- 18. 18Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 Summary Owning your view of risk in a changing market Escalating Need View of Risk = Unique Business Effective Solution Design Is Key
- 19. 19Copyright © 2015Risk Management Solutions, Inc. All Rights Reserved. December 15, 2015 QUESTIONS? For more information, contact Ryan Neugebauer at Ryan.Neugebauer@rms.com or sales@rms.com.
Editor's Notes
- #4 Most companies address catastrophe risk in a piece-meal and reactive fashion Owning your View of Risk provides an informed basis driving stability and profitability Consider a more holistic approach Assess your unique business traits Establish a View of Risk that reflects those traits and key business/risk dynamics Clarify and prioritize business goals Align and focus on business processes that best support goals and leverage your View of Risk Also want to speak to what is changing: margins, distribution, regulation
- #5 Possible analogy? Know Your View = compass to tell you what direction you’re headed? Own Your Risk = Map of landscape around you at this time? -------------------- Falling out of love with definitions. Increased ask to do Here are some examples: Know Your View (understanding from your perspective) Own your risk (engrain in your business process) Going to be unique to each business. Be practical about putting it in place.
- #6 Possible analogy? Know Your View = compass to tell you what direction you’re headed? Own Your Risk = Map of landscape around you at this time? -------------------- Falling out of love with definitions. Increased ask to do Here are some examples: Know Your View (understanding from your perspective) Own your risk (engrain in your business process) Going to be unique to each business. Be practical about putting it in place.
- #7 Image source: https://www.google.com/search?q=Personal+Lines+Oakland+Fires+91&rlz=1C1GIGM_enUS527US527&source=lnms&tbm=isch&sa=X&ved=0ahUKEwip74WirLvJAhVSwGMKHbJzAVIQ_AUICigE&biw=1920&bih=995#q=Personal+Lines+Oakland+Fires+91&tbm=isch&tbs=isz:l&imgrc=hyyTFJACUBbVLM%3A
- #8 Image source: https://en.wikipedia.org/wiki/1994_Northridge_earthquake#/media/File:FEMA_-_1681_-_Photograph_by_FEMA_News_Photo_taken_on_01-17-1994_in_California.jpg
- #9 Image source: https://www.google.com/search?q=world+trade+center+2001&rlz=1C1GIGM_enUS527US527&espv=2&biw=1920&bih=995&tbm=isch&tbo=u&source=univ&sa=X&ved=0ahUKEwiBptHbrbvJAhVL3WMKHZ2eD1IQsAQIGw#imgrc=W8_6PMDq3Fq8QM%3A
- #10 Previous point was “not knowing your VoR can create bad surprises” This slide is “knowing your VoR can lead to superior performance.” Only way to stay in the upper right is to know your risk and manage it closely and consistently no matter the market cycles.
- #11 Split out into 4 slides so i builds (instead of animation) Change from "framework" - "elements?"
- #12 Split out into 4 slides so i builds (instead of animation) Change from "framework" - "elements?” EXAMPLES: Prospective behavior 0- Northridge tilt-up, Accumulations: Oakland Fire
- #13 Split out into 4 slides so i builds (instead of animation) Change from "framework" - "elements?” EXAMPLES Contingent risk – again Oakland code losses, Clash – WTC..
- #14 Split out into 4 slides so i builds (instead of animation) Change from "framework" - "elements?"
- #19 Most companies address catastrophe risk in a piece-meal and reactive fashion Owning your View of Risk provides an informed basis driving stability and profitability Consider a more holistic approach Assess your unique business traits Establish a View of Risk that reflects those traits and key business/risk dynamics Clarify and prioritize business goals Align and focus on business processes that best support goals and leverage your View of Risk Also want to speak to what is changing: margins, distribution, regulation