An Interview with Peter Berring, Managing Partner, OverArk

The use of risk transfer and risk retention techniques, combining self-insurance with external insurance provision, is well established in the corporate world. Companies, across many industries, use these techniques to provide alternative, or complementary, solutions to traditional insurance. Patrick Smith explains how housing associations can use alternative risk transfer techniques.

Q. How can alternative risk financing techniques be used in the Social Housing sector?

A. We believe that the kind of technologies, methodologies and risk-led thought-leadership that are very well established in some housing associations in the US and corporate organisations in the financial, healthcare, manufacturing and retail sectors have not historically been widely accepted or embedded in the UK social housing sector.

However, with the size that a number of housing associations have achieved, particularly given recent large-scale mergers, many of these methodologies could be of significant financial – and non-financial – benefit. We are sure that this presents a real opportunity and that there are proven best practices that can be deployed in the housing association sector to generate value and to support and strengthen the existing expertise.

When you retain risk and take a risk-led approach, your thought process evolves from “How much insurance can we buy?” to “How much risk can we take?”

Self-insurance works well where there is significant data that enables you to model and quantify risk. The data and information available when one focuses on the enterprise-wide risks is significantly greater than that needed for, and available from, traditional insurance processes.

The quality of data leads to greater knowledge of the risk profile and as soon as there is a level of predictability, and a more concrete understanding of risk trends and patterns, then the benefit of retaining that risk, rather than transferring it, really kicks in.

Q. What are some of the other benefits to this approach?

A. You can tailor your programme totally to your business. It means that your solutions can be fully aligned to your overall objectives. Achieving that clear alignment also helps support your strategic thinking, business objective setting processes and financial planning. Further, it creates transparency and means you are making decisions which are based on a much more comprehensive data set.

Having that level of information at your disposal is key and in a risk-led programme means that you are in a position to ask “What data do I need to manage the risk?” rather than having to ask “What information do I need to get this claim settled?”

From this more data-secure positon, you can be more strategic about all events; not just those to which an insurer is exposed.

The right solution puts you – the client – in control. You can link your data, your risk profile and your risk activities. This should help reduce your total cost of risk and enable the proactive planning of risk reducing activities. We believe, it’s a smarter approach to risk financing.

Q. Why focus on the total cost of risk?

A. This is not simply about insurance nor about insurance premiums. There are, of course, insurance components to Overark’s solution, but what we offer goes far beyond an insurance programme. We take a much broader risk management approach and this informs the extent of risk retention, insurance purchase and other risk management mitigating activities, all of which are designed with the sole purpose of reducing the overall risk cost. This broader perspective creates a better understanding of risk and will often give rise to a reduction in the cost of insurance and reliance upon external insurance products.

The whole objective of the programme is to reduce the frequency and the severity of loss events and incidents.

The whole objective of the programme is to reduce the frequency and the severity of loss events and incidents.

Essentially, by looking at the total cost of risk in this way, you achieve direct benefit from the improvements in risk profile; you keep the upside. In short, the better the risk the more you benefit.

If you are in control of your data then you gain real clarity over the value of investment in areas such as the training of people, communication with customers, and the purpose and use of maintenance budgets.

Q. How can a self-insurance programme help?

A. One of the real benefits of a self-insurance programme is that it maps to your risk profile. It means that you no longer have to simply make do with a policy that has not been put together based on the unique risk schematics of your organisation.

It also mean that you are no longer subject to the risk appetite or profit requirements of another party and that you are able to enjoy the benefits of effective risk management, while also capitalising on the underwriting profits that would previously have returned to the insurer.

And you don’t get any contagion from other people’s poor risk exposure – your premium levels will always reflect your loss history and the quality of your overall risk control capabilities. This provides you with certainty over your programme, transparency on costs and creates the link, often missing, between risk management and insurance provision.

Contact: Peter Berring