A practical approach to risk quantification

The Board of a global pharmaceuticals company wanted to understand whether it was more worthwhile to retain some risks rather than to transfer them to insurers. To do this, they needed to evaluate the likely level of exposures to certain extreme business risks.

It sought a stochastic approach that provided:

• compatibility with existing risk data
• a user-friendly data capture method
• a mathematically robust process

which would ensure meaningful, comparable and repeatable assessments of risks across the company.

Zurich provided advice and specific software support to enable the evaluations to be carried out in an efficient manner. Zurich’s established methodology meant that the client did not have to expend valuable time in developing an in-house approach from scratch.

The risks to be evaluated were backed up by little historic data and the approach needed to incorporate a means of converting ‘expert opinion’ from within the business into a statistical form that could be analysed.

Zurich’s standard software tool “Quant 1” was successfully installed. Subsequent risk evaluations have greatly assisted senior management in understanding the group’s risk appetite with regard to specific business risks, and have facilitated a more efficient approach to risk transfer.