What do you do if your insurance risk assessments lack confidence?

The simplest approach would be to understand the reason the assessment lacks confidence. It could be lack of information (accessibility, new technology, new form of deployment etc.), lack of understanding (potential ripples, contagion etc.) or lack of skills, whether internal or external or something completely novel. Each of these potential deficiencies will require a different approach to remedy.

Start with a comprehensive review of your risk identification process. For example, use a checklist that incorporates not only historical data and industry benchmarks but also emerging trends, such as the impact of climate change on property risks. This systematic approach ensures you cover all bases, enhancing the depth and accuracy of your risk assessments.

Como encargado de Finanzas en una empresa, es labor primordial contar con todos los registros con la mayor consistencia viable y con el histórico más extenso posible. Si el área interna de riesgos es quien está llevando a cabo estos análisis, buen valdría la pena acercarse a expertos externos para contar con un diagnóstico y poderlo contrastar con los dictámenes de la aseguradora. Finalmente, el mercado es muy amplio, y siempre se podrá recurrir a algún proveedor cuyos análisis de riesgos sean más conservadores y con apego a experiencia.

In my view, below mentioned four points are the key to improve confidence in Insurance risk assessment - - Review & Enhance Data Quality - Update Risk Models and Algorithms - Models need continuous improvements - Conduct Scenario Analysis to evaluate the impact of different risk scenarios on insurance portfolios - Establish mechanisms for ongoing monitoring and review of risk exposures, allowing for timely adjustments and interventions as needed

Why not confidence? Is the model too complex? Changing business and market needs? Lack of transparency? Do we have reliable data?

Engage with specialists in fields relevant to your risk assessments. If assessing cyber risks, collaborate with cybersecurity firms for up-to-date insights on threat landscapes. Their expert analysis can significantly refine your understanding, providing the confidence needed to make informed decisions.

When your risk assessment is uncertain, consulting with experts can be of great help. Consultants can tell you which parts of the risk assessment results to trust and which parts not to trust. They can define confidence coefficients for you based on which you can have a better risk management. They can help you make an acceptable risk assessment despite having little and unreliable data.

Existen en el mercado firmas especializadas en el análisis cualitativo y cuantitativo de riesgos para las empresas. La gran mayoría de broker cuentan con áreas internas enfocadas en brindar este tipo de servicios. Asesorarse con expertos en materia actuarial y con especialistas en riesgos y seguros siempre brindará la posibilidad de diagnósticos certeros e impactos favorables en costos.

Word of warning - do not use complex software if you do not understand how it works, i.e. a “Black Box”. There are amazing pieces of software out there, but in my experience, they are often operated by people who do not fully understand the maths / physics behind them. All models are simplifications of reality to some extent. Not understanding the limitations and key drivers of any model (whether relayed into software or not) will render the model potentially dangerous. This leads to spurious conclusions, incorrect calibration and incorrect decisions. A further complication arises when the results cannot be explained or contextualised due to a lack of understanding of the model. Do not look for a nail-gun, if a hammer will do just fine.

Incorporate predictive analytics software to analyze risk trends. These tools can sift through vast amounts of data to forecast potential risks with greater accuracy. By relying on data-driven insights, you bolster the confidence in your risk assessments, ensuring they're both current and comprehensive.

Regularly integrate the latest market research and regulatory updates into your assessments. Subscribing to industry-leading research platforms can keep your data fresh, ensuring your risk assessments reflect the latest market dynamics and regulatory landscapes, which is crucial for maintaining accuracy and confidence.

Bajo el conocimiento común de que un sistema alimentado con insumo-basura redundará en producto-basura, se debe tener la mejor calidad de información posible. Entre más extenso el período de tiempo de recopilación de información, mayor certeza de que proyectivamente se tengan análisis estadísticos e inferencias cuyas desviaciones sean mínimas con respecto a la experiencia registrada. Al minimizar las variaciones con respecto a la tendencia que se haya determinado, los análisis de riesgo reflejarán adecuadamente los parámetros que deberán prevalecer en las coberturas de los seguros. Lo que necesariamente repercutirá en optimización de costos.

Participate in professional development courses focused on emerging risk factors, such as digital transformation risks in insurance. Gaining knowledge on these topics not only broadens your expertise but also empowers you with the confidence to tackle complex assessments with ease.

The risk appetite framework is one of the important pillars of the risk management process. Inaccuracy of the framework will have enormous impact on the operations and decision making process In my opinion it should be reviewed with senior management who is responsible for setting accurate risk appetite to be more effective and reflect the maturity of governance process