Loss Expectancy

It’s a classic question asked on a daily basis: how much insurance is enough? Although common practice in the insurance industry, the concept of conducting an Expected Maximum Loss analysis is a relatively foreign concept to many critical infrastructure owners and operators. Nevertheless, these are often the same individuals that are responsible for selecting and purchasing insurance policies to protect their infrastructure from a wide array of hazards or perils. Depending on a variety of factors, annual policy premiums to obtain this insurance can be profound.

Determining the maximum loss that could reasonably be expected is a complex process that is accomplished through the analysis of multiple loss scenarios for each hazard of concern, where each scenario has a varying probability of occurrence and represents a range of potential consequences. The three most common loss scenarios Binera evaluates for our clients include Maximum Foreseeable Loss (MFL), Probabilistic Maximum Loss (PML) and Normal Loss Expectancy (NLE) scenarios. Together, these loss scenarios establish the range of potential exposure to each peril. Binera combines sound risk theory with best-in-class modeling and analysis tools and access to the latest authoritative data sources to generate results that provide clients with a thorough understanding of, and justification for, their likely financial exposure due to a multitude of loss events. Because the risk analysis approaches that Binera employs are ‘’peril agnostic’ we can project exposures across the full spectrum of perils, ranging from natural hazards to human initiated events and technological failures. Establishing a comprehensive understanding of not just the financial consequences of an event, but also the likelihood of that event occurring is imperative to ensure selected coverage limits are appropriate.

Generating directly comparable estimates of Maximum Foreseeable Loss (MFL), Probabilistic Maximum Loss (PML) and Normal Loss Expectancy (NLE) for critical assets across all peril types.

Binera recently conducted an Expected Maximum Loss analysis for the owner/operator of some of the most critical infrastructure in the greater NYC region. The purpose of the analysis was to help inform the insurance acquisition discussion with underwriters, ensuring the infrastructure owner was not only seeking the appropriate coverage levels based on their potential exposure, but was also well positioned to negotiate for favorable rates based on the verifiable analysis performed by Binera. This particular EML analysis was unique in that it considered not just natural hazards perils, but also those from human-initiated threats.

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