Dr. James Kallman, ARM 10-1 Advanced PowerPoint Presentation ©2009 The National Underwriter...

Dr. James Kallman, ARM 10-1

AdvancedPowerPointPresentation

©2009 The National Underwriter Company

Dr. James Kallman, ARM 10-2

This Advanced PowerPoint Presentation accompanies the “Tools & Techniques of Risk Management & Insurance” textbook. Each of the 28 chapters in the textbook are presented here in the following sections:

OutlineKey conceptsMajor sectionsChapter summary

©2009 The National Underwriter Company

©2009 The National Underwriter Company Dr. James Kallman, ARM 10-3

Contents

Techniques of Risk Management & InsuranceCh 1 Introduction to Traditional Risk Management……………1-1

Ch 2 Enterprise Risk Management…………………………….2-1

Ch 3 Risk Assessment: Identification…………………………..3-1

Ch 4 Risk Assessment: Quantification…………………………4-1

Ch 5 Overview of Risk Treatment Alternatives………………. 5-1

Ch 6 Non-insurance Transfer of Risk…………………………. 6-1

Ch 7 Insurance as a Risk Transfer Mechanism………………7-1

Ch 8 Overview of Alternative Risk Transfer Techniques…….8-1

Ch 9 Global Risk Management………………………………...9-1

Ch 10 Loss Control Techniques………………………………..10-1

Ch 11 Emergency Response Planning……………………….11-1

Ch 12 Business Continuity Planning………………………….12-1

Ch 13 Claims Management…………………………………….13-1

Ch 14 Monitoring Claims for Financial Accuracy…………….14-1

Ch 15 Insurance Companies and Risk Management……….15-1

Ch 16 Working with an Agent or Broker………………………16-1


Contents

Tools of Risk Management & Insurance

Ch 17 Commercial General Liability Insurance……………….17-1Ch 18 The Workers’ Compensation System………………….18-1Ch 19 Commercial Property Insurance………………………..19-1Ch 20 Directors and Officers’ Liability Insurance……………..20-1Ch 21 Employment-Related Practices Liability Insurance…..21-1Ch 22 Business Automobile Insurance………………………..22-1Ch 23 Crime Insurance………………………………………….23-1Ch 24 Capital Markets Risk Transfer Tools…………………..24-1Ch 25 Loss Control Tools……………………………………….25-1Ch 26 The Certificate of Insurance…………………………….26-1Ch 27 Surety Bonds……………………………………………..27-1Ch 28 Claim Reviews……………………………………………28-1


Chapter 10Loss Control Techniques

Outline• The Importance of Loss Control

• What is it?

• Loss Control Theories

• Developing a Contemporary Loss Control System

• The Five-Step Process

• Advantages

• Disadvantages

• Loss Control Regulation

•Chapter Summary



The Importance of Loss Control• Loss control is common sense

• An ounce of prevention is worth a pound of insurance

• A stitch in time saves $9M in legal fees

• Most solutions include a risk financing AND loss control

• Loss control saves risk financing costs

• Loss control protects property

• Loss control protects earnings

• Loss control protects human resources

• Loss control creates value



What is it?• Defined: Intentional acts to modify the probability and/or severity of losses

• These acts create the desired amount of risk at a desired time

• Loss control enables workers to focus on speculative risks and creating value

• Loss control is done by internal workers and outsourced to experts

• Certain loss control projects may be mandated by regulations


Chapter 10Loss Control Techniques Loss Control Theories

• Theories help risk managers be more effective in creating and implementing loss control programs

• The Domino Theory of Accident Causation - H.W. Heinrich

•A sequence of five conditions or events resulting in loss

•Focus on the 3rd: modify the unsafe acts or conditions

• General Methods of Control – Military research

•Focus on creating a logical process to modify hazards

• Engineering Approach – e.g.: Wm. Haddon’s release of energy

•Focus on modifying physical systems to reduce hazards

• Technique of Operations Review – Weaver & Petersen

•Focus on motivating management to create safe environments


Chapter 10Loss Control Techniques Loss Control Theories

• Theories help risk managers be more effective in creating and implementing loss control programs

• System Safety Approach – All processes occur within a system.

• Focus on interaction of people, processes, machines, & mgmt

• Behavior Modification - The most cost effective tool

Supplement

• System Safety Approach – application of life cycle theory

• enables viewing hazardous process or condition as part of a

larger system

• system can be the entire enterprise or the society in which the

enterprise exists



Developing a Loss Control System• The management approach to loss control

• The system integrates theory and practice for optimal results

• The loss control system minimizes the agency problem

• The agents act more in the interest of the principals

• The loss control system minimizes the silo effect

• All exposures are managed as a portfolio


Chapter 10Loss Control Techniques The Five-step Process

1. Create a loss control Program

2. Risk (loss) Analysis

3. Loss control Solution Analysis

4. Loss control Decision Process

5. Loss control System Administration



1. Create a loss control Program

a. Planning loss control activities

Understanding the organizations goals

Determining the desired levels of risk

(risk philosophy: risk tolerance, risk appetite)

b. Organizing loss control activities

Authorizing and empowering internal actors

Engaging external vendor specialists

c. Writing a standard operating procedures manual

for prevention, reduction, and emergency response plans



2. Risk (loss) Analysis

Understanding the hazards (factors) that increase the likelihood and/or impact of the losses.

3. Loss control Solution Analysis

a. Identify all the options available

b. Measure the quantitative impacts of loss control activities

Effects on frequency

Effects on values (impact)

Effect on variability (risk)

NPV of the loss control activity (cost:benefit analysis)

c. Analyze the qualitative impacts

Effect on strategies

Effect on stakeholders

Effect on culture



4. Loss Control Decision Process

a. Use all available Decision models

NPV, benchmarking, professional judgment, ethics, and combinations

b. Get Support from all relevant stakeholders

Senior Executives, Divisional managers, Operations managers, and workers

c. Implement the decision

Allocate resources

Prepare budgets

Proforma financial

PERT and Gantt time charts

Resource charts



5. Loss Control System Administration

a. Monitor your progress

formal RMIS

informal grapevines

b. Judge the success of the program

c. Communicate the system’s success

Annual report

Interim reports



Advantages• Decrease worry better morale & production

• Improved efficiency

• Decreased loss costs (proactive costs are less than reactive costs)

• Improved planning – more realistic & cost effective

• Improved likelihood of achieving goals – fewer surprises

• Corporate returns (EPS, ROA, ROA, NPV, shareholder value)

• Earnings stability (net working capital, cash flows)

• Service efficiency (faster, better, consistent service and quality)

• Dividend growth (increases shareholder value, and plowback)

• Social responsibility (protect workers and the environment)



Disadvantages• Competes for scarce resources (people, materials, money, time)

• The Invisible Improvement problem (unrecognized benefits)

• The Profit Center problem (proving a negative, “but for”)

• The Geek problem (money is sexy, loss control is nerdy)

• Creates new risks

• Public relations issues (zero tolerance for losses versus a more realistic acceptable tolerance for losses)


Chapter 10Loss Control Techniques Loss Control Regulation

• A highly regulated discipline

• Protects the public trust, workers, and reduces social costs

• OSHA

• Property Fire Safety

• Human resource Life Safety

• Environmental Protection Agency

• Transportation

• many others



Chapter Summary• The Importance of Loss Control –

a common sense approach to creating value

• What is it? - modifying hazards to acceptable levels

• Loss Control Theories -

Domino, general methods of control, engineering, technique of operations review, system safety, behavior modification

• Developing a Loss Control System – a management approach

• The Five-Step Process -

Program, loss analysis, solution analysis, decision process, system administration

• Advantages - Protects assets & creates value

• Disadvantages- requires resources and may create new risks

• Loss control regulation- many, to protect the public trust

Dr. James Kallman, ARM 10-1 Advanced PowerPoint Presentation ©2009 The National Underwriter...

Documents

Transcript of Dr. James Kallman, ARM 10-1 Advanced PowerPoint Presentation ©2009 The National Underwriter...