With risks constantly evolving, a local authority can find its insurance programme is no longer fit for purpose. Financial analysis can help it understand the risk it faces and ensure its insurance programme offers value for money.
There are three main areas where financial analysis can support an organisation's insurance programme restructure. These are assessing exposure; determining optimum limits and excesses; and financial modelling for self funding.
Financial analysis
Understanding exposure is key to designing an insurance programme that's fit for purpose. This takes into account a local authority's activities, including any outsourcing and its claims history.
It can also factor in claims trends and any changes in risk to assess future performance, as well as comparing its record to that of its peers. By drilling down into an authority's exposure, an optimal programme structure can be designed.
Financial tolerance can also be modelled. This analyses programme features such as limits and excesses to determine the sweet spot that delivers real value for money.
Modelling can also help to determine fund contributions and structure for self-funding. As an example, setting aside funds to cover small but high frequency claims requires a different approach to ring-fencing the excess for a low frequency, catastrophe claim.
Delivering confidence and value
To illustrate how financial analysis can benefit local authorities, one of our clients, Dacorum Borough Council, recently commissioned Aon to undertake an actuarial review of its insurance programme.
Through analysis of its claims and loss data, we were able to recommend optimum deductible levels across its property and liability cover. As well as enabling it to strike the most cost-effective balance between its retained risk and insurance expenditure, this restructure resulted in a 20% reduction on its previous year's renewal premium.
Jason Noronha, Head of Actuarial and Analytics at Aon Global Risk Consulting, says this approach can be invaluable, especially in the current financial climate. ‘Financial analysis could help a local authority save money while also giving it confidence in its understanding of its risk,' he adds. ‘Your insurance broker is ideally placed to support this.'
For more information about how Aon's financial analysis can help your organisation ensure its insurance programme is fit for purpose, contact Alison Goodwin at alison.goodwin@aon.co.uk.
