Case Study – Insurance Optimization
Problem
With insurance costs escalating, privately owned concrete company wanted to evaluate 5 separate insurance structures to determine the optimal retention for its retained auto liability exposure. The company was simultaneously concerned about paying too much for insurance it doesn’t need, while protecting itself from the need to pay even more than the premium suggests on retained losses.
RCS Action
RCS’s team members performed an economic cost of risk analysis (ECOR), which incorporates traditional TCOR (premium + expected losses) as well as an implied risk charge to account for the income lost by setting aside more reserves. By evaluating ECOR, the company could evaluate the true cost of each retention option.
Outcome
The analysis revealed that the company’s expiring low retention structure was priced too high given their loss experience, however the analysis also revealed that a $2M retention was the highest for which the client would gain a benefit of increased retention. In all, our analysis clarified that the difference between the optimal and least attractive option was over $1 million in year 1.