Case Study: Development of an individual risk strategy for an IoT device management platform
The challenge
The management team of the development division for an IoT device management platform decides to carve out one of the well-performing divisions from a large technology group. The closing had to be completed within two months. The previous insurance cover was provided by the group, which made it crucial to quickly create a new risk profile and develop a suitable insurance strategy.
Key questions:
What does the new risk profile look like? What could an optimal risk management strategy look like? (Costs vs. hedging)
How we tackle the challenge
Thanks to our early involvement in the carve-out process, we were able to provide the management with comprehensive support during the due diligence process. This enabled us not only to analyze the risk structure of the new company in depth, but also to address critical points in a targeted manner: What was important was our understanding of:
1 Liability risks
What are the liability risks of the software? Can the device to be managed be damaged by the software?
In the risk analysis, it is important to fully understand what liability potential the company has and what potential accumulation risks may look like. To clarify this, we conducted in-depth interviews with the company's management and technical experts and reviewed the service level agreements (SLAs) to understand what liability potential exists.
2 Cyber risks
As part of the cyber risk analysis, we worked with cyber security experts to conduct a joint interview with the future CISO and management to understand where the cyber risks lie, whether hackers can access customer systems via the platform and what the risks of a business interruption at our customer might be.
3 Management risks
Managing directors are obliged to manage the company with the care required in business. Particularly in carve-out processes, in which new structures have to be created quickly, managers often do not keep an eye on every single step. This can result in damage for which the management is ultimately personally liable with their private assets. It is therefore particularly important to record the management risks and insure them with proper D&O and criminal liability insurance. Run-off cover was also purchased here in order to settle claims from the past via an insurance policy.
Further risks, insurance compliance and next steps
In addition to the most important risks, we looked at the markets in which the company is active and whether it serves them with its own local company, with a branch or only with exports. In some countries, local insurance policies had to be installed in order to maintain legal compliance or to meet local mandatory insurance requirements.
We also recorded the coverage of the offices, business interruption risks and fidelity risks and compiled them in a risk report for our client. The next step is to invite tenders on the insurance market in order to place the risks and supplement the risk perspective with a cost perspective. This also involves analyzing the optimal deductibles in terms of risks and costs. For example, it was disadvantageous to choose a deductible that was too high, as there is a high claims frequency potential but a low overall claims potential.
We discussed the risks and insurance offers together with the management and were also able to take the management's risk perspective into account. Important questions regarding the risk strategy are included:
- What is the optimum sum insured for the company and how can this be varied in the different markets in order to remain cost-efficient?
- How can we adapt the insurance strategy to the company's overall strategy? (Willingness to bear risk, e.g. through high deductibles or negotiation of premium rates based on the company's growth plans?)
- Can we provide equivalent or better insurance cover with the new risk strategy compared to the previous one in the Group?
The perspectives that we can bring to the table on various sides help, among other things, to better understand and reduce risks. By dealing with the insurance policies in detail, the costs for subsequent years can be significantly reduced.
The result
The new risk and insurance strategy significantly improves insurance cover compared to the previous Group policy. There was no focus on the division in the Group, meaning that the individual risks in the policies there were not comprehensively insured.
In addition, the premium was reduced by 35% compared to the Group levy with a significant reduction in deductibles.
Within 60 days, we were able to put in place a comprehensive insurance program that would address our client's risks and support our client's overall strategy.
Conclusion
With our support, the company was not only able to effectively manage the risks of the spin-off, but also to position itself strategically in a key phase of realignment. Our expertise in the development of individual risk and insurance strategies proved to be a decisive success factor in guiding the company safely and efficiently into the next growth phase.
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