a129 Risk Mgt&Insurance

7/29/2019 a129 Risk Mgt&Insurance

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RISK MANAGEMENT &

INSURANCEM.RAJARAM

J.B.BODA INSURNACE BROKERS

PRIVATE LIMITEDNEW DELHI


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ROUTE MAP FOR THE SESSION

DEFINE RISK AND MANAGEMENT

ROLE OF EACH OF THE PARTY RELATED TOINSURANCE; INSURED;INSURER;BROKER

NEED FOR IMPLEMENTING RM

ADVANTAGES OF HAVING RM

CLASSIFICATION OF RISKSPURE RISKS MANAGEMENT

CORPORATE RISK MANAGER AND HIS ROLE


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CONTD.PERSONAL ATTITUDES OF INDIVIDUALS

CORPORATE RISK MANAGEMENT - RISKMANAGEMENT DEPARTMENTRISK HANDLING METHODS

1. RISK IDENTIFICATION

2. RISK EVALUATION/ QUANTIFICATION3. RISK AVOIDANCE4. RISK MINIMISATION5. RISK TRANSFER

6. RISK FINANCING FOR RISK RETENTION7. ROLLING REVIEW


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CONTD

CONTINGENCY PLANNINGDISASTER CONTROL

MUTUAL AID

INCIDENT / ACCIDENT INVESTIGATIONINTERACTION WITH INSURERS/

ENGINEERS/ SURVEYORS

CAPTIVE INSURANCE COMPANIES

ASSOCIATIONS/ CLUBS/


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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

OF THE OCCURRENCE OF AN EVENTRESULTING IN 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 / UNTOWRD HAPPENING BUT CAN BRINGIN PROFITS IN THINGS GO 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 many

parts 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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Risk Management-Macro

Allowing too many Airlines withoutrunways has only resulted in aircongestion and pollution of air at higher

levelWe are contributing to global warming,unpredictable weather conditions, hole inthe ozone layer which nature has providedto shield us from ultra-violet radiation

Unscrupulous destruction of forests andcreation of concrete jungles has resulted

in ecological imbalance


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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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EFFECTS OF PURE RISKSORGANISATION FACES

LOSSEVENT

A.LOSS ORDAMAGE TO

PROPERTY

B.PECUNIARY LOSSES(FINANCIAL)

C.LIABILITY LOSSES

D.LOSS OF KEYEMPLOYEES

BODILY FATAL/NON-FATALTO EMPLOYEES


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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 & CONTENTMANAGEMENT AT ALL TOUCH POINTS REGULATORY/INSURER/INSURED/INTERMEDIARY/SURVEYOR

ADDRESS DELAY POST-HASTE

COMMUNICATE CONTINUOUSLY

GET REAL NOEXAGGERATIONS/BLUFFING

GET YOURSELF PROFESSSIONALLYRESPECTED CONTINUOUS 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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ALVIN TOFFLER

ILLITERATES ARE NO

LONGER THOSE WHO CANNOT

READ AND WRITE, BUT THOSEWHO CANNOT LEARN,UNLEARN &RELEARN

QUICKLY & CONSTANTLY


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PURPOSE OF RISK MANAGEMENT

RISK MANAGEMENT AIMS TO PROVIDE ANINCIDENT FREE AND ACCIDENT FREEENVIRONMENT FOR ACHIEVEING THE

OBJECTIVES OF THE ORGANISATIONRISK MEANS UNCERTAININTY OF THEOCCURRENECE OF AN EVENT WHICH MAYRESULT IN LOSS/GAIN

IMPORTANT CHARACTERISTICS ARE THEUNCERTAINITY/ SEVERITY OF SUCH LOSSES


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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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ENVIRONMENTAL RISKS

Risks which are to be faced which areexternal but influence the working and healthof the Organisation

These are called Environmental RisksLegal

Social- Riots/Strikes/Bandh

Political-Change in the political systems ofGovernance and Management-tensions withneighbours

Economical- Soaring Oil prices


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MANAGEMENTALL ABOUT ASPECTS OF SUCCESSFULMANAGEMENT OF RISKS BOTH PURE ANDSPECULATIVE RISKS

PROPER PLANNING

ORGANISE THE AVAILABLE RESOURCES

COORDINATION

DELEGATION

MOTIVATIONDECISION MAKING

ROLLING REVIEW


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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 change

with 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

D l t f Ri k


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Development of Risk

ManagementThe Industries / Business houses want to haveincident free/ accident free working to achievetheir objectives

For this purpose it is necessary to understand theloss producing events , the nature of losses/extent of losses to come up with the loss controlmeasures.EXPOSURE ANALYSIS

Risk Management aims to help the owners to havecontrol on loss incidents and to reduce the extentof losses by proper study of the exposures andactions to be taken to control the same

This as a science had developed in about thirtyears eriod


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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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How the loss is caused?

Loss is caused by the operation of perilswhich refers to the causes for the losses

Loss or damage is caused by the operation ofperils such as fire, explosion, flood, storm etc

The loss potential ( extent of loss) dependson conditions which are favourable for theincident to assume large proportions. This isknown as hazard or potential of the loss.More the potential severe will be the extentof loss

PERIL ( CAUSE)----------------LOSS(EFFECT)

HAZARD


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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

HAZARD


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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

RISK PERCEPTION


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RISK

RISK PERCEPTION


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Loss in Rupees

Risk

Seeker

Neutral

toward

risk

Risk

averter

RISK APPETITE


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RISK CONTROL

PRESERVE CONTINUITY OF OPERATIONUNDER SAFE OPERATING CONDITIONS

PROPER PLANNING

LAYOUT 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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METHODS OF RISK ANALYSIS

HAZOP STUDY- HAZARD OPERABILITY

EVENT ANALYSIS

THREAT ANALYSIS

INPUT- OUTPUT ANALYSIS

FAULT TREE ANALYSIS


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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

INPUT OUTPUT 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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EVALUATION OF RISKS-THREAT

ANALYSE THE THREATS TO BUSINESS

DENIAL OF ACCESS- CHEMICALLEAKAGE, COLLAPSE OF NEARBY

BUILDINGS, STRIKE, PICKETING,DAMAGE TO WATER/SEWER MAINS,GOVT RESTRICTIONS

LOSS OF SERVICESWATER,POWER,RAINS, FLOODS, CYCLONES


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EVALUATION OF RISK-THREAT

EVENT ANALYSIS

INVESTIGATE CAUSES AND EFFECTS

FAILURE OF BOILER EXPLOSION

FAILURE OF A CRITICAL ITEM

EXPLOSION IN PRESSURE VESSEL

HAZARD LOGIC TREES- VARIOUSHAZARDS WHICH MAY RESULT INOPERATION OF A PERIL LEADING TOLOSS


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HAZOP ANALYSIS

MEANT FOR CHEMICAL PLANTS

HAZARD OPERABILITY STUDIES

EFFECT OF MORE OF, LESS OF, PARTOF , NONE


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FAULT TREE ANALYSIS

EXAMINE RELATIONSHIP OF VARIOUSTYPES OF FAILURES

THE TREE IS CONSTRUCTED BY ASKING

WHAT MUST OCCUR BEFORE A LOSSPRODUCING EVENT HAPPENS

EXPLOSION REQUIRES- FORMATION OF

EXPLSOIVE MIXTURE- CLOUDFORMATION- SOURCE OF IGNITION

PROBABILITY ANALYSIS WILL HELP IN

APPRECIATON OF THE RISK INVOLVED


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SAFETY AUDITS

THOROUGH KNOWLEDGE

TEAM OF EXPERIENCED OFFICIALS

WALK IN AUDITEXAMINATION OF THE STANDARDS

HOUSEKEEPING 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 AVOIDANCE

This is also known as Risk Elimination

Identify the risk and if possible avoid the

risk by eliminating the sourceIt is like avoiding a location due to seismicactivity in the area

Avoiding a low lying location which issusceptible for flooding


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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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RISK RETENTION

To keep the costs under control, afteranalyzing the risks the Management, maydecide to retain some of such losses to its

account.Once a decision is taken , then necessaryprovision needs to be made to avoid such aloss ,if happens, eating into the operating

budgetSpecial contingency funds are therefore to becreated for this purpose


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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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RISK MANAGEMENT POLICY

The RMP is to be adopted by theManagement

The Policy details should be communicated to

the employeesThe need to have the RMPolicy should be feltby the employees

The Corporate Risk manager is responsiblefor the implementation of the RM Plan

The RM Dept will produce its own report andfollow it up with an annual report on itsperformance

CORPORATE RISK MANAGER


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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

a129 Risk Mgt&Insurance

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