Capital Management

Written by Michael McAlary

Services Area: Capital, Budgeting and Finance

Industry Sector: Insurance

Situation/Responsibility

A preliminary analysis of a major insurance company's Australian portfolio revealed that there was an ‘opportunity to deliver capital savings’ in its Risk in Force (RiF) book, because many of its customers were not providing termination data on a regular basis as required by their master policy. As a result, the active portfolio may have been overstated by 15% to 25%. A potential reduction in ‘S&P Capital Primary Losses’ of 6% to 12% was identified as well as the opportunity to realise unearned premium income.

Risks/Challenges

This was a Big Data exercise involving both the insurance company's data and their distributors data to determine whether the policies are on or off risk.

Achievements

The project objectives met by Chairmont were to:

Reduce ‘S&P Capital Primary Losses’
Ensure that the clients RiF is the right size in a verified portfolio alignment for its top 27 customers. This included a tactical RiF rightsizing of the NZ portfolio resulting in verified portfolio alignment
Deliver improvements to the way the insurance company manages its RiF on a business as usual basis
Ensure that all outcomes are achieved within a robust compliance and quality framework. The implementation of controls that would ensure that terminations are received from customers at the contracted frequency and that volumes are in line with the expected pattern.

The project saved hundreds of million in capital and identified a significant amount of unearned premium income that could be taken to profit/(loss).