Insurance Risk

About process

Simplified approach, suggested by UK risk management standard, offers following repeating steps.

Strategic objectives

Classics for any insurance company:

  • Achieve predefined sales volume (or market share)
  • Achieve predefined profitability (or claim ratio & costs ratio)
  • Have adequate capital for claim reserves allocated

Finance Engineering Insurance Risk system is dedicated to control sales volume & profitability as well as adequate claim reserves of non-life insurance products, by supporting risk underwriting, actuary (reserving & pricing) and related risk management (monitoring & decision making) functions.

Risk assessment

Relying on Solvency II study Finance Engineering Insurance Risk solution is focused on two main insurance risks:

  • Outstanding claims provision insufficiency. Ensures that claim reserves are adequate. Run-off of the provisions for claims outstanding must be close to zero. Calculation of the provision in separate risk based segments should ensure more accurate / more controlled run-off result.
  • Insurance premium insufficiency. Ensures that insurance premiums are adequate to risk taken by the company. It is necessary to assess periodically whether the insurance company assumes good or bad risks. The comparison of the commercial & risk based premium could help to find underpriced or overpriced segments, what leads to more accurate / more controlled technical result.

Risk evaluation

  • Outstanding claims provision insufficiency. How to ensure precise reserving (predicted reserves are accurate comparing with the real claim flow)? Insurance Risk Reserves module is dedicated to assist on more accurate reserving.
  • Insurance premium insufficiency. How fast and precisely to identify underpriced or overpriced segments? How to gain competitive advantage by modifying tariff structure and coefficients? Insurance Risk Prices module is dedicated to assist on more efficient pricing. Implemented risk based price and insurance premium comparison is a core engine of the module, which ensures analysis of segments profitability.


Risk reporting

Once risks are structured and estimated conclusions should be done, e.g.:

  • Insufficient reserves for local events, because of increased average claim (service suppliers increased prices); missing part - 200K, investment needed.
  • Over pricing in region A, for drivers under 25 years, driving low-power vehicles; recommendation – decrease price by 15% (expected combined ratio – 98%, increase in sales volume – 300K).
  • Serious under-pricing for trucks and main losses concentrated on abroad event risk – recommendation – increase price for abroad route trucks by 20% (expected combined ratio – 110%, decrease in sales volume – 500K).

Such conclusions should be communicated to colleagues: shareholders, top-management, as well as management of sales and claims departments. Each of them requires separate specific information to make decisions.

Insurance Risk Reports module is dedicated to assist to communication and arguing of findings done by actuary and/or risk-underwriter. It also supports monitoring of changes implemented and audit functions.


Step when management decides on actions to be done.


Development / implementation of: new tariff coefficients (new tariff structure), allocation of corrected reserves, improvements in order to increase precise level of reserving and pricing.

Monitoring & Formal audit

Functions should ensure efficient monitoring on:

  • Changes implemented – impact on sales volume may be estimated after a few days, impact on profitability after a few months.
  • Accurateness of overall process – if recommendations, which come from actuaries and risk-underwriters, were precise enough? If not, why?

Insurance Risk Reports module supports monitoring effectiveness of changes implemented as well as audit functions.