American Property Casualty Insurance Association

  • RIMS-Marsh Excellence in Risk Management Report Explores Strategic Risk Finance
  • RIMS/Marsh Excellence in Risk Management Report: Strategic Risk Finance in an Era of Big Data

    Risk managers are operating in an environment rich in data that when combined with growing alternative risk solutions can result in more robust risk finance strategies and more resilient organizations, according to a 2019 report published by Marsh and RIMS, the risk management society.

    However, a general lack of understanding of available alternative risk solutions and effective use of data and analytics are hindering many risk professionals from harnessing the opportunities, the 16th Annual Excellence in Risk Management report found. Risk management executives today are marshaling an abundance of data and risk modeling tools. Organizations can better understand changes in their risk profiles and their risk bearing capacity, allowing them to access the opportunities presented by the growing levels of capital available to finance risk.

    The Excellence report, Strategic Risk Finance in the Era of Big Data, is based on more than 600 responses to an online survey and a series of focus groups with leading risk executives in January and February 2019.

    According to the report, most risk professionals (47%) rank improving the use of data and analytics as their top priority for improving risk management capabilities. Such improvement, of note, has ranked as the top priority since the Excellence survey began asking the question in 2013.

    Despite growing interest in a number of alternative risk transfer (ART) solutions such as captives, structured risk programs and parametrics, many respondents remain unfamiliar with the concept and what they offer. For example, 33% of risk professional respondents and 53% of the C-suite respondents said they need to learn more about alternative solutions before making a decision whether to use one. Data-driven modeling is thus critical as companies need to compare traditional insurance against alternative solutions to clearly understand the value each provides. This creates an opportunity for risk professionals to add value to the strategic decisions that affect their company's balance sheet, the report notes.

    Other highlights from the report include:

    • Financing hard-to-insure exposures was the top benefit of alternative risk solutions cited by survey respondents (38%).
    • Cost and explaining the benefits to others in the organization were cited as the two main obstacles to using alternative solutions by 31% and 30% of respondents, respectively.
    • Risk professionals and C-suite respondents differ on how they think their organization would best benefit from improved use of data and analytics. Risk professionals cited informing decisions on specific risks, while C-suite respondents cited informing the overall business strategy.
    • Among the survey respondents, 31% said they gather and use risk-related data around some of their exposures in real time.
    • What technologies are companies involved with or plan to use to capture real-time data? 42% responded they use the IoT, 35% drones and 34% AI, 34% sensors, and 26% telematics.