You are advising a mid-sized manufacturing company that is renewing its property, general liability, and cyber programs after a volatile claims year. The client wants to know whether to keep a low deductible structure or move to a higher-retention program to reduce premium spend, and management also wants a clearer view of which loss drivers need active mitigation. You have one year of exposure and claims data plus two insurance quotes, and you need to assess the client’s risk management needs in financial terms.
| Metric | Value |
|---|---|
| Annual revenue | $180,000,000 |
| EBITDA | $21,600,000 |
| Cash balance | $14,000,000 |
| Historical annual claim frequency | 24 |
| Average claim severity | $85,000 |
| Standard deviation of claim severity | $140,000 |
| Current program deductible per claim | $25,000 |
| Current annual premium | $3,400,000 |
| Renewal option deductible per claim | $100,000 |
| Renewal option annual premium | $2,350,000 |
How would you assess the client’s risk management needs and recommend between the two insurance structures? Use the loss data to quantify retained loss, total cost of risk, and the financial trade-off, then explain what KPIs you would monitor going forward.
Risk financing economicsExpected value of retained lossesKPI selection for ongoing monitoringAbility to tie insurance structure to EBITDA and liquidity