KANSAS CITY, Mo., April 19, 2011 /PRNewswire/ -- Lockton has issued a new report to help chief financial officers and risk managers make informed decisions about the structure of their commercial insurance programs. The report—Dynamic Capital Modeling—shows how CFOs and risk managers can calculate whether to insure a risk or to retain that risk on the company's balance sheet.
The report is authored by Justin VanOpdorp, Lockton Senior Vice President and head of Qualitative Analysis for Lockton.
"One of the major challenges that chief financial officers and risk managers face is balancing the company's risk appetite and the cost of insurance," says VanOpdorp. "However, the cost of insurance is not the most significant factor in the equation. Instead, it is about the company's cost of capital."
VanOpdorp explains in the report that, "When purchasing insurance, a company essentially borrows capital from an insurance company to protect against the risk. When electing to self-insure or retain a portion of the risk, a company has decided to put its own capital at risk instead."
He says that the evaluation of insurance structures "often omits the amount of capital at risk and the associated cost." The report explains how to account for this cost of capital and make informed decisions on insurance buying for complex risks.
VanOpdorp is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries.