Frontier Analysis Responses

Enterprise risk management (ERM) has emerged as a new paradigm for managing the portfolio of risks that face organizations, and policy makers continue to focus on mechanisms to improve corporate governance and risk management (Beasley, Clune, Hermanson, 2005). There are several ways to analyze risks in an organization through various frameworks, tools, and techniques, Efficient Frontier Analysis is one such process that is used to evaluate risks. Being a lead of the Efficient Frontier Analysis team which is trying to address the major insurance risks in the company I would consider several aspects and develop analysis. It is also important for me to properly educate the business group on the analysis and its outcome. Following is a brief overview of how I would deliver the details to my business team. Our company has identified three insurance risks, they are earthquake exposure to buildings, workers' compensation insurance, and general liability insurance. To properly address the risks associated with the corporation and the current strategy we have come up with a mathematical analysis called “Efficient Frontier Analysis”. This analysis helps us derive the highest returns for the lowest risks as well as the lowest risk for the expected return. We gathered a list of options with our requirements and these can be used to later tally with the options insurance company provides and choose the closest one. With the current insurance values and the company’s limit, we developed a graphical overview between the tail value of losses and mean losses for each insurance risk by considering all the options that we gathered. These individual analyses are then used to calculate a combined frontier analysis where the efficient frontier is determined. This gives us a graphical view and can be used to determine an option by comparing the minimum return expected by the company or minimum risks or losses. Once the option is determined by the business executives it will help the company choose insurance provided by the insurance companies which is close to the option. Insurance risks can be reduced, and decisions can be determined efficiently using Efficient Frontier Analysis.