What are the best practices for identifying and assessing insurance risks?

1 Understand the exposure

The first step in identifying and assessing insurance risks is to understand the exposure, or the extent and nature of the potential losses or damages that may occur. This involves collecting and analyzing relevant data, such as the characteristics of the insured, the type and value of the assets, the location and frequency of the hazards, the legal and regulatory environment, and the historical and projected trends. The exposure can be measured in terms of frequency (how often a loss occurs) and severity (how much a loss costs).

2 Use risk models and tools

The second step in identifying and assessing insurance risks is to use risk models and tools, such as actuarial tables, statistical methods, simulation techniques, and software applications, to estimate the probability and impact of different scenarios. These models and tools help to quantify and compare the risks, as well as to identify the sources and drivers of uncertainty and variability. They also help to evaluate the effects of risk mitigation strategies, such as diversification, reinsurance, or risk transfer.

3 Apply risk frameworks and standards

The third step in identifying and assessing insurance risks is to apply risk frameworks and standards, such as ISO 31000, COSO ERM, or Solvency II, to organize and communicate the risk information. These frameworks and standards provide a common language and structure for defining, measuring, reporting, and monitoring the risks, as well as for setting the risk appetite, tolerance, and limits. They also help to align the risk management objectives and processes with the business goals and strategies.

4 Involve stakeholders and experts

The fourth step in identifying and assessing insurance risks is to involve stakeholders and experts, such as customers, employees, regulators, auditors, consultants, or industry associations, in the risk identification and assessment process. These stakeholders and experts can provide valuable insights, feedback, and perspectives on the risks, as well as on the expectations and requirements of the market and the society. They can also help to identify and address the gaps, biases, or errors in the risk analysis.

5 Review and update regularly

The fifth step in identifying and assessing insurance risks is to review and update the risk identification and assessment regularly, or whenever there are significant changes in the internal or external environment. This helps to ensure that the risk information is accurate, relevant, and timely, and that the risk management actions are appropriate and effective. It also helps to capture the emerging or evolving risks, such as cyber risks, climate risks, or pandemic risks, that may pose new challenges or opportunities for the insurance industry.

6 Learn from experience and best practices

The sixth step in identifying and assessing insurance risks is to learn from experience and best practices, both from within and outside the insurance industry. This involves collecting and analyzing the data and lessons learned from past events, incidents, or claims, as well as from the performance and practices of other insurers, competitors, or sectors. This helps to improve the risk identification and assessment methods, tools, and frameworks, as well as to identify and adopt the best practices for managing and reducing the risks.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?