Loss Funding Structure - Group of Public Sector Entities

What was the problem?
The group had tendered its overall insurances to be placed by a common insurance broker but poor quality of responses had meant the process was not completed. In the meantime insurance renewal rates were rising and this was putting a strain on finances. The collective body felt that an overview was required of the entire loss funding situation.

What did we do?
BDC analysed all the information previously made available for the tender process and gained an understanding of the levels of cover required, and the wide variation in types of cover placed from different parts of the group.

Using the risk management standard AS/NZS:4360:1999 as a context by which to consistently approach risk analysis, we performed a desk top high level risk analysis based on probability and severity and reported on operational risks we saw the group exposed to, some of which currently had no loss funding provision. We proceeded to analyse various classes of claims experience where that was available in order to estimate how current loss funding might be reduced.

We met with key Government stakeholders to understand the funding parameters governed the group's operations, and other loss funding providers to look at proposed changes to their levels of cover in the future.

What was the outcome?
We produced a report that outlined:
• The methodology of a consistent risk analysis approach
• The results of our analysis
• A commentary on the present worldwide insurance market
• An explanation of the cost of risk and suggested means for
   minimising that cost
• An estimate of the present cost of risk across the group (this had
   never been done this comprehensively before) along with a report
   on the breakdown of causes of claims over the past 7 years
• A suggestion for a comprehensive enterprise risk management
   programme (ERMP) to be introduced in discrete steps over the next
   18 months with the implementation to be completed after 36 months
• The range of options open to the group and indicated the likely
   costs and gains from each option
• A suggested course of action with responsibilities identified to
   enable the ERMP to be instituted.

The report has been warmly received at different levels of the group and its implementation of a new loss funding approach is now being planned.