Aon Insights
Depending on the risk management maturity of an organization,
there are different levels and ways of defining TCOR. The two most
widely recognized methods are risk transfer and risk retention. A
high-level analysis is typically used to produce benchmark figures
over time and often by industry sector – depending also on the
maturity of the organization:
Level 1
This level involves risk retention and financing costs, including risk
transfer costs in the form of premiums and expected losses within
deductibles and self-insured retentions. Level 1 requires finding
the optimal point of when it is more viable to transfer or retain risk.
Level 2
This level extends the understanding of TCOR, exploring
associated costs of risk identification, analysis and controlling risks,
such as administrative costs and overheads, external supplier
costs, and more. At Level 2, organizations are looking at internal
and external risk management costs.
Level 3
This is the point at which the organization reviews the entire
enterprise and how business operations influence TCOR. At Level
3, organizations examine costs associated with business and
transactional risks such as trading risk, loss of market confidence,
reduction in share value, market share or penalties for non-
performance. Few organizations have reached this level.
Global Risk Technology Survey 2012 Aon Risk Solutions
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Aon eSolutions 37
