Dr. James Kallman, ARM 3-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company.

Dr. James Kallman, ARM 3-1

AdvancedPowerPointPresentation

©2009 The National Underwriter Company

Dr. James Kallman, ARM 3-2

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 3-3

Contents

Techniques of Risk Management & InsuranceCh 1 Introduction to Traditional Risk Management…………..1-5

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 3Risk Assessment: Identification

Outline

• What is it?

• Step One: Categorizing Owned and Non-owned Assets

• Step Two: Identifying Third-Party Liability

• Step Three: Choosing the Resources

• Advantages & Disadvantages

• Where Can I Find Out More About It?

• Chapter Summary



What is it?

• Risk assessment has two activities:

• Risk identification (this chapter)

• Risk quantification (chapter 4)

• The ability to assess risks is related to :

• the quality of management controls

• the effectiveness of the business plan

• the culture driving the management philosophy

• ERM risk assessment requires:

• a global perspective

• using risk maps



What is it?

•All loss exposures derive from two major sources:

• Owned and non-owned assets

• Third party liability

• Risk Identification has three steps:

• Categorize owned and non-owned assets

• Identifying third-party liability

• Choosing the resources



What is it?

Supplement

Current ERM risk assessment now contains three separate and distinct activities:

• Risk Identification

• Risk Measurement (quantitative and qualification), and

• Risk Portfolio Evaluation



What is it?

Supplement

• Risk Identification

• using the seven proven methods (see page 25)

• describing the five attributes that determine the essential

quality of the risk

• Three must be described at this point in the process:

• description of the subject (the exposure or project)

• source of the change in value (peril or opportunity)

• factors that modify the likelihood or impact (hazards or drivers)

• Descriptive analysis of risk is critical first step:

• forces risk analyst to clearly explain the three dimensions of the risk

• enables better understanding of the variation



What is it?

Supplement

• Risk Measurement (quantitative and qualification)

• discussed in Chapter 4

• Risk Portfolio Evaluation

• requires risk manager to identify and measure the interaction effects

of combining risks into a portfolio

• risk manager should attempt to express the associations and

relationships between risks.

• interaction between two risks can be

• beneficial or

• adverse



Step One: Categorizing Owned and Non-owned Assets

• Financial assets can be:

• Financial records

• Legally negotiable Instruments

• Intellectual capital

• Employees are the most important asset

• Some employees are critical to survival

• Intangible Assets

• Goodwill

• Relationships with vendors

• Public infrastructure




• Assets are categorized into 4 groups:

• Physical assets,

• Financial assets,

• Intellectual capital (people), and

• Intangible assets

• Each asset can sustain:

• Direct losses, and/or

• Indirect losses (consequential or contingent)

• Physical assets can be:

• Real or Personal

• Owned or Non-owned




Supplement

• Four categories of traditional (pure) exposures:

• Assets (real and personal, including financial and

intangible assets

• Third-party liabilities (legal obligations to others)

• Human resources (including their intellectual capital)

• Net income (earnings losses, decreased revenues, or

increased expenses)



Step Two: Identifying Third-Party Liability• Five major categories of third-party liability

• Premises liability

• Operations liability (off premises)

• Product liability

• Professional liability

• Employee liability

• Premises liability

• From the ownership or use of a premises

• Visitors to the premises include:

• Trespassers

• Licensees

• Invitees

• Children



Step Two: Identifying Third-Party Liability

• Operations liability (off premises)

• Installation

• Construction

• Services

• Product liability

• Bodily injury or property damage caused by distributing goods to the public

• Some goods are inherently dangerous

• e.g., lawn mowers, automobiles, dynamite

• Does not apply to efficacy or warranty issues




• Professional liability

• Reasonable person rule not applied

• A professional is held to a higher standard of care

• A professional and the public are not equals

• e.g., A risk manager has specialized knowledge

• Employee liability

• In some cases may be third-party liability

• In most cases this is second-party liability

• All states (except Texas) usually require workers’ compensation insurance to fund this exposure




Supplement

• Additional categories – public liability exposures

• Statutory obligations, such as compliance and governance or

conduct

• Social obligations and public policy

• Stakeholder obligations – those owed a higher duty of care



Step Three: Choosing the Resources• Management realizes it must assume risk to be successful

• An optimal risk threshold must be determined

• There are 7 methods to identify risks:

• Surveys and questionnaires

• Financial documents

• Contract analysis

• Risk management committees

• Flow charts

• Company documents

• Physical inspections



Step Three: Choosing the Resources• Surveys and questionnaires

• Surveys can be customized to the operation

• Surveys are used in two ways:

• to collect and document risk financing information

• to collect and document practices and procedures

• Financial documents

• Reveals capital allocated to manage risks

• Identifies assets (and surplus for losses)

• Identifies financial obligations (debt)

• Documents may be internal or external

• Internal eg: 10Q, balance sheet, income statement

• External eg: D&B report, Yahoo Finance, Bloomberg



Step Three: Choosing the Resources• Sales and Other Contracts

• Identifies transfers of liability

• e.g., contractual liability transfer,

hold harmless agreement,

additional insured clause

• Risk Management Committees

• Key members of

• staff: finance, legal, human resources

• operations: logistics, IT, production, sales

• Risk manager facilitates quarterly meetings



Step Three: Choosing the Resources• Flow Charts

• Identifies relationships between key stakeholders

• e.g., manufacturing and sales,

company and suppliers,

company and governments

• Charts may be internal only or for all stakeholders

• Company Documents

• Identifies operational liabilities

• Examples: employee handbook, SOP, sales literature

Corporate board minutes, business plans

• Includes company statistical reports:

• e.g., loss histories, industry histories, incident reports



Step Three: Choosing the Resources• Physical Inspections

• Identifies risks not identified with other methods

• Allows verification of published materials

•e.g., Construction materials

Operations and procedures

Protective devices

Environmental exposures

• Provides opportunity to meet with local managers

• discuss loss trends

• discuss safety concerns

• get feedback

• enhances cooperation in managing risks



Step Three: Choosing the Resources

Supplement

• Additional identification techniques

• Experts – internal and external

• Loss history reports

• Job analysis, incident analysis reports

• Physical inspections, or surveys, audit documents, litigation

records

• Loss control cost evaluations


Chapter 3Risk Assessment: IdentificationAdvantages & Disadvantages

• Advantages

• Identify risks

• Get information not readily shared

• Integrates risk management with operations

• Disadvantages

• May require a great deal of time

• Difficult to physically inspect all locations



Chapter Summary

• Exposures derive from two major sources: Owned and non-owned assets & Third party liability

• Risk Identification has three steps: Categorize owned and non-owned assets, Identifying third- party liability, & Choosing the resources

• Step One: Categorize Owned and Non-owned Assets Physical, financial, intellectual capital, & intangible assets

Each asset can sustain: direct and/or Indirect lossesPhysical assets can be: real, personal, owned or non-

owned



Chapter Summary

• Step Two: Identifying Third-Party Liability• Five liability categories: premises, operations, product,

professional, & employee liability• Visitors: trespassers, licensees, invitees, & children• Operations liability includes installation, construction, & services• Product liability is BI or PD caused by distributing goods

• Some goods are inherently dangerous• Does not apply to efficacy or warranty issues

• Step Three: Choosing the Resources

7 methods to identify risks: Surveys and questionnaires, financial documents, contract analysis, risk management committees, flow charts, company documents, physical inspections




Chapter Summary


Advantages Identify risks Get information not readily shared Integrates risk management with operations

Disadvantages May require a great deal of time Difficult to physically inspect all locations

Dr. James Kallman, ARM 3-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company.

Documents

Transcript of Dr. James Kallman, ARM 3-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company.