Risk Management

Risk quantification helps Kathleen M. Ireland decide IBM's retention

Mark A. Hofmann

April 26, 2015 Reprints

Risk Management More + Less -

Risk quantification helps Kathleen M. Ireland decide IBM's retention

IBM's risk management team includes (from left) Assistant Risk Manager Sean Fresen; Insurance Analyst Denise Jones; Risk Manager Micheline Baker; Geography Lead for Europe, Middle East and Africa, and/ ARNOLD ADLER

To determine the nature of IBM's risks, Kathleen M. Ireland, the company's vice president of global risk and insurance, undertook a formal risk quantification study.

The study helped review and evaluate the efficiency of IBM's capital deployment through a formal, rigorous process that quantified the reasoning behind risk management capital decisions.

“Basically, we did it five years out, and we did it again to refresh two years out” she said. “You're taking all your loss information and balancing on what you think your risk appetite is and how much risk the company wants to take.”

She said it lays out IBM's different parameters. Regarding property, for example, IBM found “that we take a $10 million retention in our Bermuda-based captive. We could easily take $50 million if we want to, and it wouldn't have any impact on the corporation,” Ms. Ireland said. “But for us to take $50 million in risk, the reduction in premium we would get would not substantiate,” she said. “We might get $4 million, but we're taking another $40 million of risk for every event.”

“So we always weigh how much risk we can bear versus what the cost is to buy insurance,” she said.

In this case, the results showed that because of the proposed structure, IBM could take more risk and shared this with its insurers.

“While the recommendation wasn't utilized, it allowed us to show the markets that we could take more risk,” according to Ms. Ireland. IBM didn't have to accept higher pricing from the underwriters in order to have them on its program because it could just self-assume the risk.

“It was one lever to manage the price,” she said. “It's a way to revalidate or find other ways to look in a holistic view at all of your risk together.”

But conducting the risk quantification study more frequently wouldn't result in added value, she said. “To do it every other year, you'd be kind of crunching the same information. It makes sense to have several years in between.”