Looking for more effective ways to manage risk? Why the portfolio approach offers a solution – insurance laws and products

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A portfolio approach to risk management may seem complex at first glance, but combining individual lines of coverage within a portfolio can increase value and reveal hidden opportunities. While awareness of the potential benefits of portfolio approaches is growing, some risk managers may not yet feel comfortable enough with the concept to use it.

Many risk managers are seeing their insurance spending recommendations face increased scrutiny. So if you’re under pressure to find savings, now might be the time to explore a modern analytics approach to finding an optimized risk outcome.

If you are new to portfolio risk management, this short article explains some key principles ahead of February 2024 Webinar Outsmarting Uncertainty with practical insight into a portfolio risk management approach.

What is a portfolio approach to risk management?

Historically, risk management analyzed risk and made risk decisions in silos—risk by risk, policy by policy. The portfolio view brings together disparate risks into a single framework and language, enabling a holistic strategy across the entire program, rather than a collection of individual risk decisions.

With a portfolio perspective, you can make risk financing choices in the same way that investment managers make investment decisions: considering correlations and diversification across risks and choosing combinations of transactions (purchasing policies or investing in other risk mitigations) that deliver the best value for money. .

With an overview of your overall risk portfolio and mitigation options, you can use your risk capital more effectively and efficiently.

Advantages of portfolio approaches to risk management

There are a number of benefits to moving to portfolio risk management approaches. These benefits can be realized on an annual basis, upon renewal and over a longer time horizon and include:

  • Enabling arbitrage by managing competition across lines of business – for example, this allows your property owner to compete with your cyber carrier for your risk transfer dollars

  • Promoting transparency and ensuring consistency with a repeatable, actuarial framework for understanding, evaluating and managing overall risk

  • Enabling greater efficiency by identifying risk financing strategies that maximize the value of spend in line with your organization’s long-term financial goals

  • Better alignment of the risk management function with finance and treasury.

Portfolio approaches to risk management don’t have to be complicated

Using a portfolio approach to making risk decisions can be daunting. Each risk will have multiple mitigation options, so considering all potential combinations of these options across all risks means reviewing thousands or millions of combinations. But by leveraging technology and data analytics, you can see complex and sophisticated analysis at a single glance. This view allows you to visualize risk financing choices across your risk portfolio in terms of simple trade-offs between cost and risk.

You can then identify the most effective strategies for your organization and get the highest expected return on risk expenditure for a given level of risk. It is this risk optimization that helps you manage changes in your industry, operating conditions and insurance markets more effectively, maximizing efficiency and reducing costs.

WTW Outsmarting Uncertainty webinars cover a range of risk topics. Led by experts, each session is designed to provide risk, insurance and finance executives with practical insights, practical advice and real-life examples of businesses effectively navigating complex and interconnected risk areas.

Arrange Outsmarting Uncertainty meetings on demand.

Next steps to adopt a portfolio approach to risk management

Risk and analytics go hand in hand. If you’re not taking a portfolio approach to risk management, you could be leaving money on the table.

Build resilience in a changing world

Some of the world’s most successful organizations have recognized that they need to change their approach to risk financing to increase resilience in a changing world. They also see how evolving risks create opportunities to rethink their approach to venture finance and uncover unexplored value. The same goes for your organization. Your journey to a modernized portfolio can start today.

Discover a smarter way to optimize your risk and insurance value in our next Outsmarting Uncertainty webinar on using a portfolio approach to risk management. Register now

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.


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