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Insurance Marketplace Realities 2021 – The state of analytic decision making


November 18, 2020

Recommendations to weather both the hard market and economic turmoil.

The hard insurance market and the economic uncertainty caused by COVID-19 are putting every financial decision under the microscope, driving many insurance buyers to feel they must choose between reducing expenses and satisfying risk protection expectations. The use of data and analytics to help organizations best respond to these challenges is accelerating. Organizations increasingly demand to know the value insurance brings and want evidence that their insurance spend creates value for their organization. They are finding that risk analytics provide the insights they need to measure that value and set insurance priorities.

We can break down this current trend into three interconnected threads:

  1. Understand your tolerance for risk
    Many insurance buyers have historically assumed that they need the level of coverage they’ve always had. In the current environment, leadership is pushing back and asking if they can get by with less. The most effective response we’ve seen from many risk managers is to first clearly define their organizational tolerance for financial downside. This is best done by establishing a risk tolerance framework, which enables finance and risk management to work together to determine the organization’s ability to withstand losses and their preferences for how much risk they can take on. This dialogue and framework form the foundation of a risk financing strategy.
  2. Leverage analytics to measure loss potential
    A second approach increasingly applied by risk managers is the use of advanced analytics and external sources of loss data to forecast the full range of loss potential. We have long seen risk mangers use forecasting approaches as one element in coverage decisions, but we now see them demanding more insight, and they are turning to advanced analytics to evaluate risk transfer in terms of volatility reduction and value. Organizations that have already defined tolerance for risk are at an even greater advantage here, as they are well-positioned to decide if they truly need the coverage, even at a higher price, or if they can retain more risk.
  3. Design your optimal protection program
    With losses and tolerance understood, risk managers are ready to walk into insurance negotiations knowing how much coverage they need, how much they want and at what price to walk away. As a result, we are not surprised to see more organizations reject insurance coverage when the price has risen too high and instead pursue alternatives, such as parametric solutions and captive programs.

At the cutting edge of risk analytics, risk managers are looking at their risks in portfolios rather than individually, as siloed risks. In doing so organizations can harness the inherent diversity of their risk portfolios, allowing them to understand circumstances in which they can buy less insurance without increasing the overall risk to their organization. In addition, taking a portfolio view has allowed organizations to find arbitrage opportunities, successfully reducing risk for the same budget by buying protection in high-value coverage areas and shedding insurance purchases in more expensive and potentially lower value areas.

These threads underpin our recommendations to risk managers to weather both the hard market and economic turmoil:

  1. Define your tolerance for risk, thereby aligning risk management decisions with corporate financial goals.
  2. Leverage data and advanced analytics to measure loss potential and to evaluate risk transfer in terms of volatility reduction and value.
  3. Design your optimal protection program, one that gives you control of the insurance negotiation. Consider a portfolio approach.


Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.


Global Head of Risk and Analytics, Global Large Account Strategy Leader, Corporate Risk and Broking

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