The Total Cost of Risk (TCOR) is an equation that captures the total cost of self-retained losses, risk management administration expenses and insurance premiums.

Organisations can use it to identify the imbalances in their risk management approach and strive for cost savings. They may find, for example, that their insurance premiums are not low enough commensurate with their willingness to accept losses.

Overall, TCOR encourages organisations to look at risk management on an integrated basis.

Critical questions you need to consider include:

• Do you use a TCOR metric to evaluate the success of your risk management department?

• Have you checked that the balance between retention and transfer is optimised?

• Have you benchmarked your TCOR against peers?

• Do you take into account your TCOR when assessing insurance programme design - or are you just wrongly focusing on one side of the equation, the saving of insurance premiums?