Strategic risk finance in the era of big data

13 June 2019

Strategic risk finance in the era of big data Our latest report looks at how effectively marshalling data and risk modelling tools, can help organizations better understand changes in their risk profiles and their risk bearing capacity. This could give organizations access to opportunities presented by the growing levels of capital available to finance risk.

INTRODUCTION

Making effective use of risk data remains a stumbling block for many companies. In fact, the 2019 Excellence in Risk Management survey found that organizations’ top priority for improving risk management capabilities is to improve their use of risk data and analytics.

This has been the top priority each time we’ve asked the question since we first started doing so in 2013.

Why isn’t the needle moving? Are companies stuck in a “this-is-the-way-we’ve-always-done-it” mentality? Is data gathering taking precedence over data use? Are changes in analytics happening too fast? Do companies not recognize the potential benefits of a well-planned data and analytics strategy? Or are they simply unable to manage the wealth of information?

At the same time, many respondents were unfamiliar with alternative risk transfer solutions and what they offer. As the 16th annual Excellence report points out, there is a compelling relationship between understanding what alternative risk finance solutions can do and effective data and analytics.

By leveraging data and grasping new risk finance opportunities, risk executives have an opening to be alternative risk transfer educators, and add value to the strategic decisions that affect their company’s balance sheet.

In this report, we also look at real-time risk management and how it holds the promise of more effective risk modification and better informed risk finance decisions.

KEY FINDINGS

Below are highlights from our 2019 Excellence in Risk Management survey which are discussed further in this report:

Improving the use of data and analyticsIMPROVING THE USE OF DATA AND ANALYTICS IS A TOP RISK MANAGEMENT PRIORITY IN 2019

Data equals opportunity — but only when properly collected, skillfully analyzed, and insightfully deployed. Over the past decade, the amount of available data has exploded, while innovations in analytics have brought new ways to gain strategic advantages. And yet, the pace of change leaves many companies grappling with how to best use that wealth of information.

Organizations that are unable to harness their company’s data are missing opportunities. Consider that to “improve the use of data and analytics” was the most frequently cited means by which organizations hope to improve their risk management capabilities this year, according to the 2019 Excellence in Risk Management survey.

Use of Data analytics

More info on alternate risk transfer1/3 OF COMPLANIES ARE LOOKING FOR MORE INFORMATION ON ALTERNATIVE RISK TRANSFER

Many factors come into play when assessing a company’s readiness for an alternative risk transfer solution, including stakeholder knowledge, company size, and cost.

One-third of respondents said they need to learn more before making a decision regarding alternative risk transfer solutions. Data-driven modeling is thus critical as companies need to compare traditional insurance against alternative risk transfer solutions to clearly understand the value each provides.

Among C-suite respondents, 53% said they need to learn more about alternative risk transfer solutions, while 30% of risk executives said the same. This should be seen as a call for risk professionals to educate both themselves and senior executives in order to add value to strategy conversations.

Alternative risk transfer

Aletrnative risk transfer solutionCAPTIVES TOP THE LIST OF ALTERNATIVE RISK TRANSFER SOLUTIONS IN USE

When asked which solutions were in use, it was no surprise that captives were far and away the top response. Captives are often an integral part of an alternative risk transfer program, regularly used as a stepping stone toward other solutions. Following captives, the most prevalent solutions were structured risk programs, risk retention groups, and integrated risk programs.

In looking at obstacles to the use of alternative risk solutions, we again found an opening for risk professionals to educate others in their organization. Nearly half of C-suite respondents said they don’t understand how the products work, compared to just 18% of risk professionals who said so. At the same time, explaining alternative risk transfer solutions to others was the top obstacle cited by risk professionals.

C SuiteC-SUITE SEES A GAP IN ANALYZING DATA

A major gap respondents cited in organizations’ risk management function is the integration with both operations and strategic planning. This should concern those who believe risk departments should be strategic partners to the overall business — strategic thinking about risks cannot take place in a vacuum. In turn, data and analytics are increasingly a critical component of adding strategic value.

While integration with strategic planning and operations are recognized as common concerns for both executives and risk management professionals, C-suite respondents also called out the lack of data analysis. They saw it as a bigger issue than a lack of collaboration across the organization, educating others on risk management practices, and five other performance gaps that risk professionals ranked higher.

Improving the use of data and analyticsWHICH DATA-CAPTURING TECHNOLOGIES COMPANIES ARE USING

We first asked in the 2017 Excellence survey, and then again in 2019, which common disruptive technologies companies are currently involved with or exploring.

Use of Technology in company

The data shows that many risk executives — and others — may not fully recognize the breadth of their organization’s involvement with new technologies. In many areas — including Internet of Things (IoT), sensors, telematics, robotics, and wearable technology — the percentage saying their organization uses or plans to use the technology has dropped since 2017.

This does not align with other studies that show widespread use. For example, some estimates say 80% of companies are using artificial intelligence (AI) in some form, but only 34% of Excellence respondents said their organization uses or plans to use AI.

This report was produced in conjunction with RIMS, The Risk Management Society.

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  • Elowe BrianBrian Elowe

    Brian Elowe is the Chief Client Officer for Marsh’s US and Canada Division. In this role, he works with Marsh’s leadership team to create optimal and consistent client experience platforms and to ensure that the “voice of the client” is central to organizational decisions. He is a member of the US and Canada Executive Committee.

    Brian’s client work has centered primarily on the financial services and global industrial sectors. He is a key architect of Marsh’s Dynamic Risk Framework, author of this Excellence in Risk Management report. He works with numerous Marsh clients in the F100 space to develop strategic risk management strategies.

    For further information please contact Brian Elowe, Chief Client Officer on 617 416 9835 or email Brian.C.Elowe@marsh.com.

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