Scottsdale Insurance Company: How Risk Analysis is Utilized in Commercial Property Insurance

Risk is a given in any industry, and Palisade’s mission is to empower organizations to see the impact and probability of risk with any decision. Perhaps the most concrete example crunching the numbers of probability can be found in the insurance industry. Identifying accurate risk factors—and making decisions accordingly—is the bread and butter of insurance companies of all sizes. As a result, many rely on Monte Carlo simulation to assist in making prudent decisions that will ensure the ability to cover claims and still earn a profit.

Scottsdale Insurance Company (Scottsdale, Az.) is one of the largest excess and surplus (E&S) and specialty lines carriers in the nation. They offer a wide range of lines that many standard companies reject, which requires a very high degree of risk scrutiny. To make the best determinations, Scottsdale Insurance Company turns to @RISK to determine the probability of risk factors.

One area where Scottsdale Insurance Company relies on @RISK is in deciding whether or not to insure commercial properties. The ultimate goal in this sector of the business is to identify properties that offer the highest risk adjusted returns on capital (RAROC).  Utilizing @RISK, Scottsdale Insurance Company runs simulations, such as catastrophic weather risk to determine the likelihood that a disaster would occur, the economic reserves required to insure it and whether all factors combined would generate an appropriate RAROC.

Scottsdale Insurance Group offered an inside look into to how such decisions are made in a very interesting case study. In the study, the decision-making process is simulated through the comparison two properties that appear to have very similar values. It isn’t until risk analysis is performed, that one property clearly holds more risk than the other.  If you’ve ever wondered how insurance companies make such determinations, this study will provide some fascinating insight.

» Case Study: Scottsdale Insurance Company uses @RISK to choose between competing opportunities

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