Risk Maturity Benchmarking: Riding the Wave of Change

Helping clients through the evolution of catastrophe modeling is a core mission for RMS Consulting. To assist in the process we have developed a tool called Risk Maturity Benchmarking, which we’ll introduce below, that helps our customers do this. Secondly, we will review an example where we have applied this framework with a client to create their own target operating model for catastrophe risk.

I don’t believe we would have achieved what we have if we had not first undertaken the RMB study

Luis Brito, head of catastrophe modeling, IRB Brasil Re

The industry is presented with both challenges and opportunities as the pace of change in the (re)insurance industry accelerates. Challenges include increased M&A activity, the entry of alternative capital and continued rate pressure, coupled with catastrophe losses from 2017 and 2018. These headwinds are contrasted by opportunities: an expanding protection gap which is not being filled quickly enough by the market, and technology – from data analytics to automation, frequently touted as the Holy Grail. All these factors have forced the industry to look at itself and reexamine how and where to compete in this brave new world.

Some reach for technology to deliver solutions – creating “tech incubators” and providing seed capital to make sure they don’t miss out. Others, such as Lloyd’s, have introduced initiatives such as Decile 10, Catastrophe Risk Operational Framework (CROF) and the London Market Target Operating Model (LM TOM), taking a different approach to achieving competitiveness. But, a common goal across all these initiatives, as summarized by Jon Hancock, performance management director at Lloyd’s, is to “… create and maintain a competitive and secure marketplace.”  

Our customers tell us the approach they want to adopt requires striking a balance between disciplined risk analysis and investing in a differentiated customer experience, while also decreasing the expense ratio. For many market participants, this means using technology, analytics, and innovative new products to disrupt the traditional insurance value chain and establish their position in the new world.

At RMS, we are using the latest science and technology to deliver a new class of high-definition models on RMS Risk Intelligence™, an open and flexible platform, that helps our clients implement a differentiated view, design new insurance products, and grow sustainably in this rapidly changing climate. In addition to the well-known benefits of a cloud-based architecture (uptime, reliability, scalability), there is an opportunity for RMS clients to update their processes, drive new efficiencies, and integrate the analytics to further differentiate with their customers. 

But Where Do You Start?

While RMS models and software are consistent from customer-to-customer, how they are used to support business strategy and deliver sustainable business value varies for each of our clients. Identifying how to best deploy the models and software and delivering the complete solution starts with an objective assessment of current systems, workflows and teams.

Working with fifty of our largest clients over the last ten years, RMS Consulting has developed the Risk Maturity Benchmark, a targeted engagement to helps clients answer these exact questions. Over the course of three to six weeks we work closely with you to assess your existing environment, evaluate potential options and develop recommendations for improvements. This enables you to:

• Obtain an independent review of your exposure and risk management practices
• Objectively assess how your maturity compares to peers
• Set a baseline for future improvements
• Prioritize improvements for greatest impact
• Improve underwriting and portfolio management of catastrophe risk

A successful catastrophe management strategy should not confine itself to just technology, it should also address people and process as well, to examine all impacted business processes (we look at ten areas). Your company strategy, risk philosophy and underwriting objectives will all have an impact on the right catastrophe management strategy for your business.

As with any strategy development process, you need to start by understanding the current state of your catastrophe risk management operation, how you compare to others, and the evolving market and technology environments.

Please refer to the next blog where we review how we helped IRB Brasil with their risk management practices.

If you are interested in Risk Maturity Benchmarking, Solution Design or Production Implementation services, please contact Consulting@rms.com

About RMS Consulting

We have worked with many of the largest (re)insurers on catastrophe modeling related engagements over the last 10 years. No other consulting firm has the depth of catastrophe modeling experience, coupled with insurance domain and technology. We are the only company that has developed a catastrophe risk maturity index to enable benchmarking of your scores against peers. Find out more here.