Insuring all risks is not always the optimal solution.
Through setting deductibles and waiting periods for property and casualty insurance, we will consider optimizing risk management, including self-owned properties, as well as risk transfer through insurance. We will compare the reduction in annual premiums obtained by setting a deductible with the resulting increase in self-owned property risks, and verify the effectiveness of changing the deductible setting.
The scope of insurance coverage can be adjusted by setting a lower limit (Attachment Point) and an upper limit (Limit), or by setting a reduction compensation rate (%). By quantitatively comparing and evaluating the amount of risk that is not covered by insurance with the total amount of risk that the company can hold throughout the year (company surplus, acceptable sales decline, bank commitment line, etc.), it becomes possible to confirm whether business operations will not be disrupted even if the largest possible risk occurs.
Statistical methods are used to represent the sum of annual cumulative risks from independent risks. By using the cumulative risk analysis methods that we have cultivated through risk management and captive insurance operations within the Toyota Group, we can compare the sum of the amount of risk held by our customers (maximum value per unit) with the amount transferred to various insurance policies, and determine the maximum amount of risk held in-house.
Unlike risks faced by individuals (e.g., life-threatening illness or car accidents), risks in business activities cannot be predicted with a reasonable degree of accuracy using the law of large numbers. Because there is considerable variation in the frequency and impact of occurrences, determining how much margin to secure against the quantified maximum risk is a matter that must be decided under critical management judgment.