RiskCost
Historically, insurance premiums have been dictated by market forces, based for the most part on perceptions of risk rather than on the actual levels of risk to which an asset is exposed. RMRI have developed a methodology that allows an asset owner to assess whether market insurance is cost-effective. The methodology has been developed into a user-friendly Decision Support Tool (DST), known as RiskCost.
Based on the Risk Profile for an asset (a record of the detrimental events associated with the asset, along with their probable frequency and consequences), an assessment can be made of how much the asset owner should be prepared to pay for risk transfer (insurance). If cover cannot be purchased at that price, the asset owner may decide to retain the risk (self-insure). This decision depends not only on the actual level of risks to which the asset is exposed (represented by the Risk Profile), but also on the asset owner's 'risk aversion'.
RiskCost allows the asset owner to compare different risk transfer options, by entering, for example, different levels of deductible or maximum cover. The optimum strategy, that is the strategy that provides the asset owner with the highest expected return (or highest expected utility), is identified.
