Risk analysis pbi
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8TH ANNUAL NONPROFIT INSTITUTE
Leslie T. WhiteCPCU, CIC, ARM, CRM
Croydon Consulting, LLC
Risk Analysis for the NonprofitMay 18, 2010
LEARNING OBJECTIVES
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INNOVATION REQUIRES RISK TAKING. TAKING RISKS REQUIRES INFORMED, FACT-BASED DECISION MAKING.
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RISK MANAGEMENT
A discipline for dealing with the possibility that some future event may cause unexpected results
Dealing with uncertainty . . .
DEALING WITH UNCERTAINTY . . .
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RISK MANAGEMENT PROCESS
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Identify risks
Evaluate & prioritize risks
Select risk management techniques
Implement techniques
Monitor & improve the program
RISK APPETITE
5 – High – accepts opportunities with inherent high risk
4 – Moderate – willing to accept risks 3 – Modest – Willing to accept some
risks in certain circumstances 2 – Low – Not willing to accept risks in
most circumstances 1 – Zero – Not willing to accept risks
under any circumstances
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RISK IDENTIFICATION
Identifying potential events that if it occurs will affect organization
Event is an incident or occurrence stemming from internal or external sources
Outcome can be positive, negative or both
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RISK IDENTIFICATION PROCESS
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“What could go wrong?”
• People• Property• Income• Goodwill
Nonprofit Assets Dimensions of Risk
• Operational• Legal• Political• Financial & market
RISK IDENTIFICATION TECHNIQUES Survey or questionnaire Financial statements Records & files Flowchart Personal inspection Experts – Internal & external Loss experience Other nonprofits
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RISK EVALUATION
Frequency Likelihood of event occurring
(frequency)
SeverityPotential financial & operational
impact
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PROUTY APPROACH
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FrequencyAlmost
Nil
Slight
Moderate
Definite
Slight Significant
Severe
Severity
RISK MANAGEMENT PROCESS
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3. Select and implement risk management techniques
“What will we do?”
RISK CONTROL TECHNIQUES
Avoidance Loss Prevention - reduce likelihood Loss Reduction - reduce size of loss Segregation
Separation Duplication
Contractual transfer Legal & financial
RISK FINANCING TECHNIQUES
Retention
Transfer
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TRANSFER/SHARING
• Contractual transfer
• Indemnification Agreement
• Hold Harmless
• Financial transfer
• Insurance
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CONTRACT REVIEW PROCESS
Someone not involved in the negotiations
An attorney An insurance professional
Before the contract is signed, it should be reviewed by:
INSURANCE REVIEW – WHY?
Transfers liability Indemnification provisions Hold harmless agreement Liability limitation & exculpatory provisions Waiver of subrogation
Insurance requirements
These provisions can be in any part of the contract.
INDEMNIFICATION
Indemnitee - Receives payment or protection from another
Indemnitor - Agrees to pay another
INDEMNIFICATION AGREEMENTS
Limited Intermediate Broad
Many states limit or prohibit Many insurance policies won’t
cover
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INDEMNIFICATION WARNINGS
An indemnification or hold harmless agreement is only as good as the ability of the other party to pay
If you are indemnitee, at fault and the other party cannot pay, you are still responsible for your negligent actions
“Secure” all indemnification provisions with insurance
CONTRACTUAL LIABILITY INSURANCE
Only available under general liability policy An exception to an exclusion Must be an “insured contract” Only applies to “bodily injury” & “property
damage”, NOT all losses Loss occurs after agreement reached Attorney fees & litigation expenses
considered damages unless indemnitee agrees to several conditions.
“INSURED CONTRACT”
Lease of premises Sidetrack agreement Any easement or license agreement Ordinance obligation to indemnify a
municipality, except in connection with work of a municipality
An elevator maintenance agreement And . . .
“INSURED CONTRACT”
When you assume the tort liability of another to pay for “bodily injury” or “property damage” to a third person or organization.
Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
LIABILITY TRANSFER GOALS
Accept no more risk than can reasonably insure or finance
Transfer the balance of risk to another party
Use to insulate organization’s insurance & risk retention program
Does not replace insurance
GUIDELINES
Avoid assuming liability for sole negligence, willful acts, or punitive damages and fines
Avoid liability for “any and all loss” Limit property damage to “tangible”
property Ensure liability meets definition of
“occurrence”
INSURANCE REQUIREMENTS ISSUES
Use antiquated insurance coverage terms Comprehensive general liability Public liability All-risks Extended coverage Water damage liability Personal injury Contractual liability (to insure the agreement) Independent contractors coverage Policy limits – per accident, per person
INSURANCE REQUIREMENTS ISSUES
Requires coverages not really needed Insurer must notify indemnitee if any
“material changes”, cancellation or non-renewal (no insurer will do this)
Insurers must be acceptable to indemnitee
Request to be added as a named insured or additional named insured
Waiver of subrogation
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COMMERCIAL GENERAL LIABILITY
Coverages• Bodily Injury & Property Damage
• Personal & Advertising Injury
• Medical Payments
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SPECIAL EVENTS INSURANCE
•Commercial General Liability
•Hired & Nonowned Auto LiabilityEVENT CANCELLATION• Lost revenues• Lost expenses
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BUSINESS AUTO LIABILITY
Liability• Bodily Injury & Property Damage
• Owned Vehicles
• Nonowned & Hired Autos
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DIRECTORS & OFFICERS LIABILITY“Wrongful Acts” • Directors, Officers, Trustees
• Employees, volunteers
Personal Injury & Publishers Liability
Employment Practices Liability
•Wrongful Termination
• Sexual Harassment
• Discrimination
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WORKERS COMPENSATION
Statutory Benefits Medical v. Indemnity Independent Contractor v.
Employee Employer’s Liability
“Arising out of and in the course of employment”
Employee suits
May or may not cover volunteers
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OTHER LIABILITY POLICIES
Umbrella/Excess Liability Professional Liability Employee Benefits Liability International Liability Pollution Liability Publishers or Media Liability Fiduciary Liability Electronic Liability
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VOLUNTEER ACCIDENT POLICY
Accidental bodily injury (Not illness or liability) Accidental Death, Dismemberment & Loss of
Sight Medical Expenses
Low limits Excess over personal health insurance
(usually) Check exclusions – sports participant/team
member, aircraft, etc.
RISK MANAGEMENT PROCESS
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4. Monitor and update the program
• Compare actual to expected results
• Any new programs, activities or risks?
• Changes in mission or strategy?
CROYDON CONSULTING, LLC
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Leslie T. White, CPCU, CIC, ARM, CRM
P. O. Box 1414
Severna Park, MD 21146-8414
410-544-0913 Fax 410-544-9913
Email: [email protected]
www.croydonconsult.com
Twitter: @Ltwhite