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 new report published today by Marsh, the world’s leading insurance broker and risk advisor, 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 operate in a time of abundance in two key areas: capital and data. Pension funds, sovereign wealth funds, and others have earmarked an estimated $1 trillion for investment in risk finance. And on the data side, too, the numbers are staggering: Some 2.5 quintillion bytes are created every day (and that’s a year-old figure!) By next year, 1.7 megabytes of data will be produced every second for each of the Earth’s 8 billion people.
So what’s the connection? By effectively marshalling data and risk modeling tools,organizations can better understand changes in their risk profiles and their risk bearingcapacity, allowing them to access the opportunities presented by the growing levels of capital available to finance risk. The reward for those that get it right is to build a robust risk finance strategy and more resilient organization.
But 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.
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 has ranked as the top priority since the Excellence survey began asking the question in 2013, prompting one to wonder: “Why isn’t the needle moving?”
At the same time, despite growing interest in a number of alternative risk solutions such as 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, the report notes.
“By effectively marshalling data and risk modeling tools, organizations can better understand changes in their risk profiles and risk bearing capacity allowing them to access the opportunities presented by the growing levels of capital available for risk finance,” said Brian Elowe, North American Chief Client Officer, Marsh.
Carol Fox, Vice President of Strategic Initiatives, RIMS, added: “Expectations for risk management professionals to deliver strategic solutions has never been greater. Now is the opportune time to integrate new technologies for accessing ‘real time’ data to inform business and risk-taking decisions, as well as lead in the development of innovative finance solutions to transfer risk.”
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.