Determining the optimum claims retention levels across an insurance programme can deliver considerable savings. Ruth Murray, Client Director at Aon, explains how the Claims Retention Insight Platform can support public sector organisations.
Public sector organisations face two main conflicting priorities when purchasing insurance – tighter budgets and increasing insurance rates. Striking the right balance between the two requires a detailed understanding of claims experience and costs.
For many public sector organisations, the current level of claims retention is a historical artefact rather than an active decision taken annually at renewal. In such instances, it’s possible that this choice is no longer the most efficient option available and they could save thousands of pounds a year by moving to a different structure.
But moving to a different structure is not without its risks. Increasing levels of self-retention can reduce insurance premium outgo but introduce the risk of increased volatility of claims experience. Going in the opposite direction by opting for lower deductibles increases the certainty of claims experience; but this comes at the cost of higher premium outgo and ‘pound swapping’ with insurers.
Determining an efficient trade-off between claim retention and claim volatility is a challenge, especially in the current market. Therefore, to assist your organisation with this decision, Aon has developed the Claims Retention Insight Platform (CRIsP).
This is a dynamic analysis tool that uses visualisation software to present results. It achieves this goal by allowing direct comparison of different insurance programme structures under various realistic scenarios, for example, using a Total Cost of Risk (“TCoR”) measure. This can aid public sector organisations when setting their claims retention levels.
Our analysis will be tailored to your organisation’s risk profile and is scalable to include as many lines of business as needed, providing there is sufficient claims data. In instances where the current level of retention emerges as the most efficient option, CRIsP analysis will still serve as a health check for the current risk transfer strategy and may even be incorporated into the organisation’s risk financing process.
CRIsP process and outputs
CRIsP estimates the claims volatility associated with different insurance programme structures, based on in-depth analysis of your historical claims performance. This will give you a detailed understanding of the impact of changing the each and every loss retentions on your retained claims and help you determine the most cost-effective programme for your organisation.
On completion of the analysis, we will produce a full written report that contains the results of the analysis, assumptions and methodology for each line of business under review. This will demonstrate the TCoR for each option under consideration, where premium information is available at the time of the exercise. Where premium information is not available, the analysis can instead provide you with a ‘premium-to-beat’ for different programme options.
Where useful, we will also present the results in an interactive results delivery platform, allowing you to directly compare the alternative retention options being considered.
The data required to complete this exercise includes:
- individual claims details, such as risk class, dates and total incurred value (minimum of 5 years history)
- exposure figures for all historical policy where there are claims
- estimates of exposure for the forthcoming policy year
- latest policy documents (this process works best on uncomplicated programme structures)
- details of any significant changes in risk profile, such as mergers, outsourcing, etc.
- details of the different each and every loss retention options you would like to explore
To assist with this process, we have created a Microsoft Excel file to share that can be used to validate your organisation’s data. This file contains internal checks and summary tables to allow for better understanding of your risk profile, even before the analysis has started.
Once complete with data, Aon will then be able to advise on each line’s suitability for CRIsP and the range of retention options we can model based on the data available.
For more information on Aon’s CRIsP analysis or any of Aon’s other services, speak to your account manager or contact Ruth Murray at firstname.lastname@example.org.