14 Mar 2023
by Alison Goodwin

If you’re arranging the insurance programme for your organisation, factoring in actuarial analysis can deliver a more informed, and potentially more cost-effective approach to managing risk.

Taking a data-driven approach can help highlight emerging trends and risks as well as give you more insight into your risk exposure. By using data available to you, like claims data from your insurer, exposure insight from your organisation, or trends information from your broker, can help validate your claims fund. It can also build an insurance programme that protects your organisation.  

A data-driven approach has never been more important

Public service organisations are under huge financial pressure, exacerbated by the cost of living squeeze felt by residents, citizens and customers. Claims inflation is pushing up premiums, and insurers are taking a tougher stance when assessing claims.

On top of this, we are currently operating in a hard insurance market. Using data to create an insurance programme that strikes a balance between risk retention and risk transfer is a must.

Here are five things to consider when using data to enhance your insurance programme:

  1. Combine data sets for greater insight

Claims data can help you shape your insurance programme, showing which areas of the portfolio generate the highest volume of claims and where risk management strategies may be more effective. But, for greater insight, it is important to overlay exposure information alongside the claims data. This will help you identify where risks are changing and how this might affect your claims fund.

For example, claims data may show the number of claims has doubled, but if exposure has increased threefold, the risk has actually improved. 

  1. Analyse the total cost of risk

Using an actuarial approach to understand the total cost of risk is a valuable exercise when selecting your insurance programme. By overlaying historical claims data on different insurance programmes, with varying deductibles, limits and aggregates, it’s possible to see what the optimum structure would have been.

Undertaking an actuarial analysis, using a mathematical model, allows you to assess the potential claims that you are exposed to but have not seen in your own historical data. Supplementing this with additional data such as inflation, claims and development trends, can provide a measure of the potential for claims going forward, which can be used to determine the most appropriate insurance programme.

  1. Is your data up-to-date?

Accurate property reinstatement values are essential, especially in a hard market. Faced with a claim, insurers will pay close attention to the sums insured and may apply average, leaving the organisation to cover some of the reinstatement costs.

As property reinstatement values are affected by a wide variety of factors, a rolling programme of valuations is the most effective way to maintain adequate sums insured. For councils, a four or five-year programme is usually acceptable, provided the values are increased as recommended by the valuer or RICs index in the intervening years.

  1. Check data accuracy

If you plan to benefit from greater use of data when designing your insurance programme, accuracy is essential. Data discrepancies cause greater uncertainty in results, so avoid them where possible.

As an example, check that the claims data supplied electronically by your insurer tallies with the data you hold in-house. A regular cross check will keep your data interpretations accurate and meaningful.

  1. Review your governance

Governance reviews of claims funds can help an organisation determine the most appropriate amount to set aside. The frequency of these reviews is often set locally; with actuarial analyses typically occurring somewhere between an annual to a three-yearly cadence across the public sector. We recommend getting a full actuarial sign off at any review as this will ensure any changes in risk are picked up and acted on promptly, and will assist with a smoother audit process.

Aon’s Actuarial Team can help you and your organisation maximise the value of data within your insurance programme. As well as supporting you with any queries you may have about your data, we can provide tools such as our Risk Financing Decision Platform to harness the power of data.

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