ENTERPRISE RISK MANAGEMENT

Stephen Rinder, PrincipalAustralian Reliance

Level 5, 56 Clarence StSYDNEY NSW 2000

Stephen RinderPrincipal  Role: Insurance programme design and placement and corporate business development

Qualifications: B.Comm. ANZIIF (Fellow), QPIB, CIP, Dip. Management.  Years Insurance Experience: 17

Previous Positions: Senior broking roles at Marsh, OAMPS and InterRISK Australia

Major Client Experience:•Asea Brown Boveri Limited•Coates Hire Limited•Sydney Airports Corporation•Chandler Macleod Group Limited•ACCOR Group•Talent2 International Limited•Babcock & Brown

Curriculum Vitae

Australian Reliance was formed in 1998 and has grown to become one of Australia’s leading privately owned corporate insurance brokers.

Our company is owned and managed by its staff– this ensures our clients’ needs always come first.

Australian Reliance employs leading insurance professionals who are extensively experienced specialists in their fields. Our Principals have worked for the major global insurance brokers and bring an abundance of knowledge and experience to an environment that is focused on clients.At Australian Reliance, a Principal of the Company is the nominated point of contact and has access to a wealth of product and industry specialists across the globe.

The depth of experience and breadth of knowledge of our people enables a precisely detailed solution that matches clients’ needs.

At Australian Reliance, the team that negotiates and implements a client’s insurance program is responsible for managing its service needs. This increases our understanding of our client’s business and creates ownership and accountability throughout the entire process.

In 2009, Lockton, the world’s largest privately owned broker acquired a strategic shareholding in our company, providing access to international marketsand servicing capabilities in over 43 countries.

Australian Reliance have been announced as ‘Broker of the Year' in its category at the 2011 Australian Insurance Industry Awards for the second year in a row.

Australian Reliance- About Us

Determining the Approach

Determining the organisation’s overall approach to risk management.

Communicating that approach in clear and consistent manner. Creating strong and credible linkages with the strategies and

objectives of the organisation. Developing the platform for a common risk management

language and culture across the organisation.

Identifying Identifying the potential sources of risk that threaten or provide opportunities

Evaluating Refining this initial list of identified risks based on their potential impact on the organisation and the likelihood of each risk.

Prioritising these risks in order of importance or impact, to determine actions required for risk treatment.

Treating Determining an appropriate response to each risk- whether to avoid, reduce or prevent exposure, or to spread or compensate for its effects on the business.

Developing strategies to finance the costs of any residual exposures, either by funding the risk within the business, or transferring/ sharing the exposure to an outside party (such as a contractors, financier or insurer).

Monitoring Measuring, reporting and reviewing the success of risk

management strategies.

Generally Accepted Organisational Risk Management Approach

Risk Management Process (Based on ISO 31000)

CO

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Risk Identification

Risk Analysis

Risk Evaluation

Risk Identification

Establish context

RISK ASSESSMENT

A well-defined risk management strategy includes the following attributes:

The risk strategy is linked to and supports the business strategy.

A risk culture is created and encouraged throughout the organisation.

Risk management is continuous, systematic process integrated into corporate culture.

Risk is identified, quantified, aggregated and studied for interrelationships.

Risk management responsibility is clearly defined, and risk is a key consideration for financial decision making.

A strategic or enterprise approach to risk management must include the following:

An understanding of the enterprise’s capacity to bear and propensity to assume risk.

The establishment of a robust yet scalable process for risk identification and assessment.

The evaluation of risk on a portfolio basis, with a keen understanding of the natural hedges that might exist among risks.

The establishment of a framework within the business that balances risk control activities with risk financing mechanisms.

ERM- A More Uniform Approach to Managing Risk

ENTERPRISE RISK STRATEGY

AND METHODOLOGY

HR

INFO TECH

LEGAL

DIVISION 3

DIVISION 2

DIVISION 1

FINANCIAL

OPERATIONAL

HR

ENVIRONMENT

TECHNOLOGY

STRATEGIC

Critical Success Factors

PHASE 1Define risk

Establish goalsDevelop common language

Develop framework

PHASE 2Risk identification and assessment

Prioritise risksMeasure risks

Management ability

PHASE 3Rigorous quantification

ERM policyTechnology support tools

True integration on portfolio basis

PHASE 4ERM process fully integrated into operations

Managing risk part of performance evaluations

Risk is part of strategic planningRisk aware culture alive within the company

ERM process ongoing

Total Cost of Risk (TCOR)

Insurance or Risk Transfer Costs

Premium Taxes and Charges

Total Costs

Property $ $ $

Liability $ $ $

Motor $ $ $

Workers Comp $ $ $

Marine $ $ $

Engineering $ $ $

Total Risk Transfer Cost $ $ $

Self Insured or Risk Retention Losses

Total Costs

Under deductible Losses- Property $

Under deductible Losses- LIability $

Under deductible Losses- Motor $

Under deductible Losses- Marine $

Under deductible Losses- _______ $

Under deductible Losses- _______ $

Self Insured Losses $

Internal Risk Management or Administration Costs

Total Costs

Costs of maintaining the risk management or insurance function and/ or department (staff, office, travel, training and administrative costs)

$

Risk management information systems

$

Internal risk management compliance programmes and technology

$

Total Internal Costs $

Total Cost of Risk

TCOR Benchmarks Value TCOR Measurement

Total Assets $ %

Annual Revenue $ $ per $1,000

Annual Profit $ %

No. of Full Time Employees $ $ per FTE

Risk Transfer Decision Making Process

Key Loss Attributes

Risk Retention Strategies

Insurance Options

Catastrophi

c Losse

s

Flare occurrence Hard to project Major threat to

the organisation

Transfer most risks Organisation may

still have level of confidence to retain some risks

Purchase insurance protection for most effective available limits

Portion may be retained depending on market cycles (using self insurance vehicle)

Some risks still uninsurable (war, nuclear etc)

Large Losse

s

Infrequent Difficult to

predict Significant

impact on the organisation

Transfer majority of risks

Maintain some risks and/ or levels of risk depending on the cost of risk transfer

Purchase insurance protection for majority of risk exposures

May look to arbitrage between cost of coverage and level of deductible during market cycles

Small Losse

s

Moderate frequency

Reasonable predictability

Moderate severity

Retain risks within organisation

Establish mechanism to fund losses to limit impact on operational budgets

May insure for losses in excess of predictable levels

Minor

Losses

High frequency Easy to predict Negligible

impact on the organisation

Can easily self fund from operating budget

Uneconomical to insure Seen as working losses by

insurers which simply erode premium

FREQUENCY OF LOSSES

VERY H

IGH

VERY L

OW

VERY L

OW

V

ERY H

IGH

?