Constructing Insurable Risk Portfolios

This talk presents a method for constructing insurable risk portfolios using a data-driven approach to devise risk retention programs that safeguard firms from a multitude of risks. Because firms face many risks, including fire damage to their buildings, liability from management misconduct, and external threats like cyber attacks, this talk treats these potential liabilities as a "portfolio." Drawing inspiration from Markowitz portfolio theory, it leverages techniques from probability, statistics, and optimization to build algorithms that construct optimal risk insurable portfolios under budget constraints. Through engaging case studies, viewers will learn how to build optimal insurable risk portfolios. The talk illustrates a frontier that depicts the trade-off between the uncertainty of a portfolio and the cost of risk transfer. This visual representation, mirroring familiar Markowitz investment tools, enables informed decision-making and easy adoption by risk advisors. The talk outlines the mathematical groundwork for constructing optimal insurable risk portfolios in an effective and aesthetically pleasing manner.