WILLIS ENTERPRISE & RISK FINANCE

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WILLIS

ENTERPRISE

&

RISK FINANCE

WILLIS’ ENTERPRISE & RISK

FINANCE PRACTICE (WERF)

OFFERS SEVERAL

STATE-OF-THE-ART PROPRIETARY

RISK ANALYSIS TOOLS FOR

ORGANIZATIONS SEEKING

FACT-BASED APPROACHES TO

RISK MANAGEMENT DECISIONS.

THE CASE STUDIES OFFERED

ON THE FOLLOWING PAGES

HIGHLIGHT THREE OF

THESE TOOLS.

CCoR

Comprehensive Cost of Riskis a decision support tool that identifies the most effective combination of premium, limit and retention for any given risk. By factoring the client’s cost of capital into the purchase of insurance, it also identifies the optimal mix of client and carrier capital in financing a risk.

It is of particular value for clients seeking a more objective basis for determining the most beneficial program structure.

LOSS PIQ

Loss PIQ (Prospective Identification and Quantification)was developed in 2005 to quantify low frequency/high severity risks that have inadequate historical data for standard actuarial techniques. It is truly

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unique in the market and in every case our clients have reported Loss PIQ gave them their first-ever credible quantification on risks such as Products Liability, Products Recall, Cyber, E & O etc.

RAPID

OurRisk Assessment Probability and Impact Diagnosticis a risk mapping process that delivers a comprehensive business risk assessment on an accelerated basis. It generates high-impact, quality graphics that analyze and clearly communicate risk assessment results to senior management. It is especially useful in initiating or enhancing an enterprise risk management (ERM) program.

LARGE NATIONAL CONSTRUCTION FIRM

(SALES $800M)

The client employed theRAPIDprocess to identify and assess all major risks to achieving profit and growth objectives over the next three years. In a facilitated workshop involving 15 senior managers representing different functions and geographies, the process surfaced and fully articulated 16 main risks, of which nine were identified as requiring immediate action. Specific action plans, responsibilities and deadlines to reduce the impact and likelihood of loss were agreed and implemented.

GLOBAL MANUFACTURER OF

AUTOMOBILE PARTS (SALES $10B)

This client created a medical products division to exploit certain of their processes and technology. In the absence of any historic medical Product Liability data, Willis helped them apply their own internal risk assessment output within aLoss PIQworkshop, which was then combined with public domain data to establish a credible Product Liability loss distribution. The loss distribution was used in conjunction withCCoRto evaluate the existing Products Liability program structure and identify the most appropriate limits and retentions for renewal. At the conclusion of this project the risk manager advised us that for the first time he felt he had a reasonable understanding of the risks this new operation posed.

GLOBAL AUTO SAFETY EQUIPMENT

PARTS MANUFACTURER (SALES $800M)

This client had developed a rigorous internal product safety protocol. However, they wanted to employLoss PIQin order to quantify their

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Product Recall risk and objectively assess existing systems and controls. The client’s director of quality control provided the following feedback on Loss PIQ (client’s name has been changed):

“As you know in the business that XYZ Corp is in it is imperative that we assess the risk with every product we make and deliver so the main effect of the project was the validation of our systems. Your team provided XYZ with a quantifiable method of validating XYZ’s self assessment of the potential risk. Prior to your project XYZ did not have the ability to state with any confidence the associated risk with the products and processes we manage but your report provided scientific based data that provided XYZ with the ability to better understand and calculate risk in our systems and products.”

GLOBAL FOOD MANUFACTURER

(SALES $3.7B)

The client had been purchasing Product Recall coverage at a

reasonably high cost and high retention. Historic loss experience was minimal. Management had two main concerns: the possibility of a previously unforeseen loss (e.g., food bioterrorism) and the lack of an objective basis for determining the most appropriate limit and retention. We employedLoss PIQto quantify the risk on a prospective basis and to identify the most efficient risk financing structure. Based on the analysis, the client restructured to a three-year term with lower attachment that delivered a significantly reduced cost of risk to the organization.

GLOBAL TIRE MANUFACTURER

(SALES $3B)

Willis was invited to conduct an overall assessment of the client’s product profile from a Warranty, Recall and Product Liability

standpoint. We utilizedLoss PIQto estimate both expected and high-confidence losses for their key products as well as their emerging products. The latter helped establish the potential delta in exposures of the new product suite. Analysis output was presented to the parent in Japan who subsequently increased the amount of coverage purchased in the U.S. (and also appointed Willis as their global broker).

NATIONAL ENVIRONMENTAL

ORGANIZATION (NON-PROFIT)

This client sought an objective assessment of their insurance structures and premium allocation. They employed a modified version ofLoss PIQto develop probability loss distributions across

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major lines. The Loss PIQ output was used to evaluate current insurance buying practices and reasonableness of limits, deductibles and premiums. The analysis was also used to develop a more

objective and rational premium allocation formula so that groups with higher risk profiles were charged premiums commensurate with their exposure. The recommended adjustments to existing program designs and new cost allocation methodology were approved by the board of directors.

NATIONAL MANAGED HEALTHCARE FIRM

(SALES $615M)

The client had not experienced any Product Liability losses but was concerned about the potential for high severity events. They also sought a more rational basis for selection of their insurance program structure. We utilizedLoss PIQin conjunction withCCoR. Based on the analysis the client increased their Errors & Omissions (E&O) limit and decreased their Cyber limit.

GLOBAL TOY MANUFACTURER

(SALES $2B)

Following corporate management changes, every aspect of this client’s operations came under close scrutiny, including insurance. Every prior decision was questioned and alternatives were

considered.CCoRanalysis was key to helping the client measure the effectiveness of their existing structures and make changes to their programs and structure at renewal. Significant changes in

per-occurrence and aggregate limits and retentions were made to their integrated insurance program to better suit current and anticipated needs.

FOREIGN NATIONAL OIL AND GAS

PRODUCER (GROSS REVENUE $4.3B)

This client was concerned with the subjective process by which they had determined limits and retentions of their on-shore and off-shore Property (PD & BI) programs. To make up for insufficient historic loss data, they employed twoLoss PIQworkshops. The results were integrated with relevant public domain data and catastrophe risk analysis to establish credible loss distributions. Subsequently,CCoR analysis was used to identify the most appropriate program, and in the end it was shown that higher retentions would result in more efficient use of risk financing capital.

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INSURANCE COMPANY FOR STATE

ASSOCIATION OF LOCAL ENTITIES

(NON-PROFIT)

We utilized theRAPIDprocess to identify and assess all major impediments to the achievement of the client’s business objectives. The process identified several risks with both substantial likelihood and the potential for significant loss. In light of this analysis, the organization made urgent and significant improvements in their controls, staffing and procedures. The client went on subsequently to address the risks that posed a less immediate threat.

HOSPITAL SYSTEM (NON-PROFIT)

The client was interested in objectively evaluating various excess malpractice insurance structures. Under Willis’ direction, the client’s outside actuary projected losses at various confidence levels as part of aCCoRanalysis. The client used the CCoR analysis along with their own information about malpractice claims trends and operational changes to decide which program was most appropriate for them.

REGIONAL HEALTH NETWORK

(NON-PROFIT)

Three hospitals combined forces to purchase primary Healthcare Professional (HPL) and General Liability (GL) coverage from a third-party insurer and to fund excess HPL in a jointly owned captive. We developed HPL and GL loss probability distributions and used CCoRto evaluate whether it made more sense to keep the primary in the captive and/or for the captive to transfer an excess layer to a third-party reinsurer. Output of the analysis indicated that placing the entire layer in the captive generated better value than (re)insuring primary and/or excess with third-party (re)insurers.

GLOBAL PHARMACEUTICAL

MANUFACTURER (SALES $1.4B)

We employedLoss PIQto develop independent Product Liability loss distribution curves for this client’s prescription and OTC drugs. This was prompted by the client’s belief that the industry data they had been relying on for their risk management decisions

overestimated their true exposure. Based on output of the workshop, the client determined that for this particular risk the existing structure was in fact appropriate.

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