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RISK MANAGEMENT &

INSURANCE

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RISK MANAGEMENT &

INSURANCE

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RISK- DEFINITION

Risk is defined as the chance of havinga loss due to occurrence of an event

The risk is always associated with theloss aspects since the word itself hasthe association of DANGER OF LOSS

The definition can be PROBABAILITY OFTHE OCCURRENCE OF AN EVENT RESULTINGIN LOSS/ GAIN

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RISK AND MANAGEMENT

RISK- CHANCE OF AN EVENT HAPPENINGRESULTING IN LOSS/ GAIN

TO APPRECIATE THE NEED FOR LOSSPREVENTION AND IMPLEMENT MEASURES

TO ACHIEVE THE SAMETHE EFFORTS ARE AIMED TO PREVENT ALOSS HAPPENING BUT ALSO TO MAKE ITMANAGEABLE IF IT HAPPENS

THIS ASPECT IS TO BE ACHIEVED IN ALLACTIVITES OF THE ORGANISATION BE INPRODUCTION, STORAGE, HANDLING,TRANSPORTATION AND DISTRIBUTION

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EFFECTS OF RISK

Risky situations are to be faced by those who aredeploying their Capital & RESOURCES in any VENTURE( is it an ADENTURE?)

Adventure means venturing into some area which mayhave serious effects on the well being of the resources

All Industries / Business do face such situations every

day in their activitiesHence risk may bring in loss in case of an accident /untoward happening but can bring in profits in thingsgo in the way these are expected to happen

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Risk Management- MacroProvision of adequate infrastructure,trained personnel and capability tomitigate huge losses due to disasters

natural & man made will be the main areafor macro analysis by the Government

Natural disasters result in hugedevastation and loss of human lives

Bhopal tragedy had put India in Guinnessbook of world records as one of the bigtragedies of the world

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Risk Management-MacroPollution is now causing the maximum concern & affectsthe health of citizens and young population- Solid, water,air

We need to improve the public hygiene awareness and

the way in which we are soft targets for epidemics dueto pollution

Past earthquakes in Maharastra & Gujarat had shownhow ill prepared we are

Every year the country is ravaged by floods in manyparts and drought in some parts- interconnection ofrivers remains a distant dream- water may become oneof the major sources of trouble in this country

Infrastructure is looked into only after development and

government is then unable to acquire the land required

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RISKS A BUSINESS FACES

ENVIRONMENTAL RISKS-LEGAL,SOCIAL, ECONOMIC, FINANCIAL RISKS

CHANGES IN BUSINESS, SPECULATIVERISKS,TECHNOLOGICAL CHANGES

PURE RISKS

FUNDAMENTAL RISKS

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STEPS IN MANAGEMENT

PLAN

ORGANISE

DELEGATEMOTIVATE

TRAINING

CONTROLCOURSE CORRECTIONS

ACHIEVE THE GOALS

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Details A.Loss /dge to property

Fire & explosion

Storm, cyclone, hurricane,

flood/inundation

SRCC

Accidental damages

Breakdown losses

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Financial losses

Business Interruption

Loss of profit

Continuing fixed costs

Cost of alternate accomodation

Increased cost of working

Increase in cost of replacement of assetsfollowing loss/damage/destruction

Under insurance/absence of insurance

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Liabilities

to general public

to users due to defective products

to employees as employer

as tenants

other legal liabilities

due to their acts-Directors/ Officers

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Human resources

Fatal or non-fatal injuries

Loss of key/ trained employees

Loss of earnings due to disablement

Hospitalization and medical expenses

Travel ( inland and overseas)

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EFFECTS OF SPECULATIVERISKSORGANISATION FACES

SPECULATIVERISKS

LOSS OF REVENUEDUE TO LOSS

OF MARKET SHARE

LOSS OF CUSTOMERS/SUPPLIERS

INCREASED FIXEDCHARGES/ LOSSES

LOSS OF KEYEXPERIENCEDEMPLOYEES

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Risk Management- Definition

Risk Management is defined as thesystematic way of ensuring protectionof business resources and incomeagainst losses so that the aim , goalsand vision of the company can bereached.

Thus Risk Management creates stabilityand contributes to growth and assuresprofitability of the Organisation.

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AIM OF RISK MANAGEMENT

TO SUCCESSFULLY ACHIEVE THEOBJECTIVES OF THE ORGANISATION

ACHIEVE THE COMPANYS MISSIONACHIEVE THE SHORT TERM AND LONGTERM GOALS OF THE ORGANISATION

SATISFACTION OF CUSTOMERS,MANAGEMENT, EMPLOYEES ANDSHARE HOLDERS & GOVERNMENT

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RISK MANAGEMENT

This is of very recent origin ( less than threedecades old)

This is now being considered as a managerial

topic and as aspect in which the topmanagement should get involved to reduceany adverse effects on the balance sheets.

RM can be described as the scientific way of

dealing with or handling the risks.This is done by Risk Analysis, Risk Control,Risk Transfer, Risk financing and rollingreview

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ICEBERG OF LOSSES

INSURED LOSSES

UNINSURED LOSSES

UNINSURED LOSSES

LOSS OF GOODWILL

LOSS OF MARKET

LOSS OF CUSTOMERS

LOSS OF SHAREHOLDER VALUE

LOSS OF KEY EMPLOYEES

LOSS OF COSTS INCURRED

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THE R M IMPERATIVES

RISK NEEDS PERCEPTION

RISK ANALYSIS

RISK ASSESSMENTRISK MINIMISATION/CONTROL

RISK IMPROVEMENT

SHARE INDUSTRY EXPERIENCESHARE INFO ON CHANGES - BOTHCURRENT & PROSPECTIVE

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THE R M BEST PRACTICES ?

INVOLVE ALL PLAYERS

EDUCATE, CONTINUOUSLY

INVOLVE CORE & NON-CORE

INVOLVE FINANCIAL PERSONNEL

INVOLVE SAFETY PERSONNEL

INVOLVE FIRE SERVICE PERSONNEL

INVOLVE BUSINESS PARTNERSINTERACT, CONSTANTLY -PROACTIVELY

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THE RISK MANAGERS DOS

ALWAYS ADDRESS CHANGE & CONTENTMANAGEMENTAT ALL TOUCH POINTSREGULATORY/INSURER/INSURED/INTERMEDIARY/SURVEYOR

ADDRESS DELAY POST-HASTE

COMMUNICATE CONTINUOUSLY

GET REALNOEXAGGERATIONS/BLUFFING

GET YOURSELF PROFESSSIONALLYRESPECTEDCONTINUOUS EDUCTION

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THE RISK SPECTRUM

ENIRONMENTAL RISKS

STATUTORY RISKS

LEGAL RISKSTECHNOLOGICAL RISKS

HUMAN ELEMENT

PRODUCTION/ FINANCIAL/MARKETINGMARKET RISKS

TIME FACTOR

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THE RISK SPECTRUM

PROJECT RISKS

STORAGE RISKS

ERECTION & MAINTENANCE RISKS

OPERATIONAL RISKS

STORAGE RISKS

TRANSPORTATION RISKS

OUTSOURCING RISKS

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ADVANTAGES OF RM

To achieve the objectives of the Organisation

To ensure that the goals short term and long term

are achieved without any disruption or delayTo optimise the utilisation of the resources

To have knowledgeable insurance arrangementsand have considered decisions on insurances not

to be availed

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CLASSIFICATION OF RISKS

SPECULATIVE RISKS & PURE RISKS

DYNAMIC RISKS & STATIC RISKS

FUNDAMENTAL RISKS

PARTICULAR RISKS

CLASSIFICATION OF

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CLASSIFICATION OFRISKS

SPECULATIVERISKS

Operation of thisleads to profit /lossLeads to speculationlike investment ofcapital in a newventure

Operation is desired

PURE RISKS

These do not changewith the risk

The operation of theseperils does bring inloss/damage to

property/assets/ liabilityNot desired

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Classification of RisksDynamic risks

Changes with thechange in fashion,buying behaviour,

trends, technology etcIt denotes dynamicnature of the customerbehaviour and the

products they like toown or use

If an organization is notprepared then it may go

out of existence

Static risksLike pure risks theserisks remain static anddo not change due to

other reasons like that ofdynamic risks

The operation of theserisks always bring about

lossesOperation is not desired

May result in partial ortotal cessation of

activities

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CLASSIFICATION OF RISKS

PARTICULAR RISKS

Risks which relate to

one or few firms,factories ororganisations only

Losses are suffered

by one or few moremembers of thesociety

FUNDAMENTAL

RISKS

Relates to the society at

large

Losses are suffered bylarge section of thesociety/nation(s)

Losses may be due tonatural catastrophes,riots, epidemics etc

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Risk Management processThe steps in Risk Management process are:

1. Risk analysis- Risk identification &

Risk evaluation

(Risk measurement)

(Risk quantification)2. Risk control - Risk avoidance

(Risk minimization)

3. Risk transfer- Insurance withProfessional

Insurance companies

4.Risk financing- Risk retention

5. Rolling review

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Causes of lossesPerils- such as fire, explosion etcHuman factors- such as negligence, carelessness,inadequate training, inadequate supervision, lackof proper systems and controls

Inadequate maintenance ( predictive/ routine/annual maintenance)

Failure of Plant/ machinery due to breakdowns

(failure of safety devices)Natural perils such as flood, cyclone, earthquake,landslide, rockslide & subsidence

Extraneous: Accidents involving Gas or chemical

in nearby units

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HAZARD

Hazard is defined as conditions existing which

are favourable for the loss becoming severeCLASSIFICATIONS OF HAZARD

Physical hazard-Originating hazards

Contributory hazardsTertiary hazards

Moral hazards -relating to the moral behavoiurof the clients

Morale hazard -Relating to the morale & workingconditions of the employees & employer-employee relationships

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RISK ANALYSIS

Needs to be done by a person who isconversant in the identification andmeasurement

The severity of the risk depends on twofactorsextent and frequency ( probability)-ranges from 0-1

There are various methods to analyze theextent of loss

The frequency is to be analyzed based on theanalysis of data ( loss events and thefrequency ) using statistical methods

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RISK ANALYSIS- METHOD

LIST ALL POSSIBLE RISKS

INVESTIGATE BY

STUDY

INQUIRY

DOCUMENT REVIEW

PHYSICAL INSPECTION

ANALYSE EACH RISK

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RISK CONTROL

PRESERVE CONTINUITY OF OPERATIONUNDER SAFE OPERATING CONDITIONS

PROPER PLANNINGLAYOUT OFBUILDINGS/PLANT/MACHINERY

BUILD IN SAFETY TO AVOID LOSSES TOPERILS SUCH AS FIRE, EXPLOSION NATURAL

OR HUMAN NEGLIGENCE CAUSING SERIOUSLOSSES

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RISK ANALYSIS

Property losses- losses which can happen to theAssets

Pecuniary losses- Financial Loss which can be

caused by business interruption due to the loss tothe assets, financial loss due to infidel acts ofemployees, storekeepers and other employees

Liability losses- Loss to the Third Party property or

third party personnel ( also known as TPPD andTPBI) due to activities of the Organisation

Personal injuries- accidents resulting in fatal or

non-fatal injuries to the employees

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RISK EVALUATION

Methods available are

Study of Organisational charts/ balancesheets, accounting records

Process flow diagrams, P & I diagrams

Input- output analysis- contribution fromvarious sections, inter-dependencies

Study of completed checklistsThreat analysis- Denial of access, Loss ofservices

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EVALUATION METHODS

INPUTOUTPUT ANALYSIS TO TRACETHE FLOW OF GOODS AND SERVICES

TO IDENTIFY THE CONTRIBUTION OFPARTS OF ORGANISATION TO THETOTAL EARNINGS AND TO ANALYSEEXPOSURES

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SAFETY AUDITS

THOROUGH KNOWLEDGE

TEAM OF EXPERIENCED OFFICIALS

WALK IN AUDIT

EXAMINATION OF THE STANDARDSHOUSEKEEPING SECURITY, TRAINING

AND PREPAREDNESS OFEMPLOYEES,MEANS OF ESCAPE

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RISK EVALUATION-CONTD.

Event analysis- Effects of a lossproducing event

Hazard Logic Tree- Risk and effectsHazard Operability studies- more of ,less of, none of, part of,

Fault tree analysis- Explosion,Safety audits- Physical inspection

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RISK HANDLING METHODS

ADOPTION OF LOSS CONTROL MEASURES

Loss control measures involve the nature ofthe devices utilized and the human factor

For any system to be effective the employeesconcerned need to be properly trained andknowledgeable.

The Management need to ensure that thesystems employed are in good working orderthe employees are regularly trained.

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RISK MINIMIZATION-RISK CONTROL

If risk can not be eliminated then it is necessary tominimize the extent of loss/damage/liability byemploying loss control measures

Utilizing fire fighting measures like detectors/

hydrants/sprinklersUsing CCTVs/ watch & ward to ensure adequatesecurity

Employees need to be well trained for fire fighting

operationsEmploying proper checking /screening systems/regular and its inventory controls

Checking the antecedents of persons employed

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EFFECT OF LOSSES

Huge losses will upset the functioning of thePower Station

Besides the interruption losses, the loss of

goodwill, investigation by Government andother agencies will be tedious

The direct impact of any incident is in themonetary loss and in restarting of the

affected unit.Employees morale gets affected

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CORPORATE RISK MANAGER

The Corporate risk manager is essentially thecoordinator . He has to analyze the various activitiesand find out the risks involved and analyze which areto be controlled, avoided and which are to be insured.

Once the plans are finalized and adopted by theManagement , the Insurance dept ensures that theinsurance policies are obtained and maintained duringthe annual period

Periodical reviews need to be done to ensure that therisks are analyzed and necessary modifications aredone to suit the organization's policies.

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CONTINEGENCY PLANNING

IDENTIFICATION OF ALTERNATE SOURCES

IDENTIFICATION OF KEY AREAS

PLANNING FOR COMEBACK IN SHORTESTPOSSIBLE TIME

BACKUPS OR DUPLICATE RECORDS OF VITALINFORMATION TO BE MAINTAINED IN

ALTERNATE SAFE LOCATIONS

INCIDENT /ACCIDENT

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INCIDENT /ACCIDENTINVESTIGATION

ALL INCIDENTS WHETHER THESE RESULT INAN ACCIDENT OR NOT NEED TO BEREPORTED AND ANALYSED TO AVOID A

FURUTE LOSS OR RECURRENCE.

ALL LOSSES NEED TO BE STUDIEDWHETHER SMALL OR MEDIUM OR BIG WITH

A VIEW TO LEARN THE CAUSES AND TOENSURE THAT PREVE

CONTRIBUTIONS OF RM TO

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CONTRIBUTIONS OF RM TOTHE BUSINESS

Achievement of objectives/ goalsReduced anxiety due to losses are of reasonablemagnitude and does not cause serious loss situations

Goodwill is maintained by meeting the obligations

The business is able to survive competition

Successful and continued operations

Resultant growth and sustained earnings

Better care for employees and society at large

Reduction of expenses

Better relationships between customers, suppliers,

employees

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THANK YOU