Strategic Insurance Purchasing in the 21st Century

Strategic business management is concerned with both the level of financial performance and the uncertainty that surrounds it. Typically companies focus their strategic analysis on those core operations driving their basic business. However other components, such as investment and insurance, also may have the potential to introduce significant variability in financial results. The financial community has developed fairly sophisticated methods and products to deal with asset returns and risk, and the insurance industry is now doing the same with dynamic financial analysis (DFA). Businesses can improve their financial performance if they incorporate these newer tools into their risk management processes. With the recent turmoil in the U.S. Stock market and interest rate volatility, a significant amount of attention has been paid to the risks and rewards associated with investing an organization's new cash, while at the same time revisiting the organization's current investment mix. Public and private companies spend a significant amount of time and money ensuring that their asset portfolio will generate the highest rate of return with hopefully the lowest level of risk along the efficient frontier I. These organizations utilize in-house investing experts in combination with outside investment advisors to perform in-depth analyses on all aspects of the organization's investment purchases. These in-depth analyses include numerous technical indicators and modeling techniques. Unfortunately, the same amount of time and research may not be undertaken by the same organizations when purchasing property and casualty insurance coverages. The impact on an organization's financial results from various insurance programs are much less understood by risk managers than investment options used by investment managers to reduce an organization's investment risk, yet they can have potentially as significant of an impact on the volatility of the financial results.