Risk Management 101 Workshop
Workshop Agenda
Introductions
General/Safety
Cell Phones
Purpose
Approach
Q & A Time
Evaluations
Workshop Materials Used
Old
New
Borrowed
And True
Organizational Objectives
Profit
Operating Efficiency
Continuous Operations
Stable Earnings or
Revenue Stream
Growth
Legal Compliance
Humanitarian Concerns
Reputation
Risk Management
A system for planning, organizing, leading, and controlling the resources and activities that an organization needs to protect itself from the adverse effects of accidental losses.
Goal- To reduce the exposure to loss for the organization.
Risk Management Objectives
Pre-Loss
Economy of RM
Operations
Tolerable
Uncertainty
Legality
Ethical Approach
Social
Responsibility
Post-Loss
Survival
Continuity of
Operations
Profitability
Stable
Earnings/Revenue
Social Responsibility
Growth
Risk Management Responsibilities:
Strategy/General
Communication
Safety/Loss Control
Claims
Management
Claims Analysis
Risk Financing
Management Reporting
RM Advice
Key Partnership Building
Executive Management
Internal Audit
Operations/Unions
Human Resources
Benefits
Safety/Security
Planning
Construction
Real Estate
Contracts Admin.
Risk
Management
(Traditional
Role)
Legal
Regulatory
Compliance
Insurers
3 rd Party
Administrators
Finance
Accounting
Brokers
Major Types of Exposures
Property
Buildings-Business Personal Property
Rolling Stock- Personal Property of Others
Liability
Legally Enforceable Obligation
Personnel
Key Personnel and Officers and Directors
Net Income
Revenue Reduction/Expense Increase/Both
Basic Risk Management
Decision-Making Process
1.
Identify Exposures to Loss. (Analyze)
2.
Examine Feasibility of Alternative Techniques
3.
Select Most Suitable Technique
4.
Implement Chosen Technique
5.
Monitor and Evaluate Performance of the Risk
Management Program. Modify as needed.
Step 1-Identify/Analyze
Exposures to Risk
Standardized
Surveys/Questionnaires
Financial Statements
(Budget-P&L-CAFR)
Records and Files
Flowcharts (Fault Tree
Analysis)
Personal Inspections
Experts (Internal &
External)
Benchmarking
Step 1-Identify/Analyze
Exposures to Risk
“Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match or even surpass them at it.”
Unknown
Risk Management Techniques
Avoidance- Ceasing or not undertaking an activity that creates exposures to loss.
Loss Prevention- A technique that reduces frequency of a particular loss.
Loss Control - A technique that reduces the severity of a particular loss.
Risk Transfer - Shifts the financial consequences of loss to another party or insurer.
Risk Finance - An conscious act or decision not to act that generates the funds to pay for losses.
Step 2-Examine Feasibility of
Alternative Techniques
Loss Frequency
Loss Severity
Maximum Possible
Loss (MPL)
Probable Maximum
Loss (PML)
Loss Frequency and Loss Severity
Interaction
Basic Approach
Frequency and Severity Interaction
Frequency Severity
High High
High
Low
Low
Low
Low
High
Remedy
Avoid
Retain
Retain
Transfer
Risk Mapping Approach
Frequency and Severity Interaction
5
High Severity
High Impact
Low Likelihood
Transfer
High Impact
High Likelihood
Avoid
2.5
Low Severity
0
0
Low Impact
Low Likelihood
Retain
Low
Frequency
2.5
Low Impact
High Likelihood
Retain
High
Frequency
5
Too Late For A Break?
Risk Management Techniques
Loss Prevention- Pre-Loss Activity
Loss Prevention
System and Behavioral Safety
Training
Good Housekeeping and Proper Storage
Practices
Proper Installation and Maintenance of
Equipment
Accepted Procedures for Welding, Hazardous
Material Handling
Adherence to Safe Work Procedures
Machinery Guards
Improved Building Materials
Risk Management Techniques
Loss Control- Concurrent Loss Activity
Loss Control Devices/Materials - Products that are triggered during a loss or are made with special material to control severity of injury and/or destruction of property.
Separation - Disperses a particular asset or activity over several locations.
Duplication - Uses back-ups, spares or copies of critical property, information or capabilities and keeps them in reserve.
Risk Management Techniques
Risk Transfer
Contractual Risk Transfer-
Indemnity Agreements
Hold Harmless
Agreements
Insurance Requirements
OCIPS and CCIPS
Financial Capacity of
Insurers
Additional Insured
Agreements
Waivers of Subrogation
Proof of Coverage
Certificates
Insurance Policy
Endorsements
Obtaining Certified Copies of Policies
Risk Management Techniques
Risk Transfer
Insurance- A technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer at a guaranteed cost.
Declarations
Insuring Agreements
Conditions
Exclusions
Risk Management Techniques
Common Insurance Coverages
Liability
Auto Liability
Privacy and Security
Liability (Cyber)
Workers’
Compensation
Employer’s Liability
Employment Practices
Liability
Environmental Liability
Property
Earthquake
Flood
Business Travel
Accident
Builder’s Risk
Railroad Protective
Crime
Risk Management Techniques
Risk Finance
Insurance- Used as a finance technique for catastrophic losses.
Self-Insurance- A technique that described special situations in which risk retention has been consciously selected as the appropriate risk management technique.
Large Deductible Program- insurer assumes full statutory liability while employer retains a significant portion of the risk.
Factors in Designing
Risk Financing Programs
Expected Losses
Market Conditions
Corporate Philosophy
Risk Control
Commitment
Financial Position
Geographical Locations
Loss Payout Patterns
Effective Tax Rate
Corporate Ownership
Cash Flow Comparisons
Factors in Designing
Risk Financing Programs
Net Present Value
Today’s $ is worth more than tomorrow’s $ because of investment income implications.
Net Present Value Cash Flow Versus
Guaranteed Cost Comparison
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
972,424
$428,825
972,424
$787,871
$1,505,963
972,424
Optimistic Expected Pessimistic
Loss Scenario
Self Insurance
Guaranteed Cost
Qualified Self Insurance
Formalized retention program
Excess insurance purchased for losses exceeding limit
Qualification requirements vary by state
Positive cash flow
Ability to influence program costs
Unbundled services
Administrative requirements
Definition of Large Deductible Program
A policy in which the insurer assumes full statutory liability to all workers within the scope of coverage, in the same manner as any other workers’ compensation policy, while the employer assumes a contractual obligation to the insurer under which the employer retains a significant portion of the risk.
Large Deductible
Loss retention plan
Excess insurance covers losses above deductible
Positive cash flow
Ability to influence program costs
Access to insurer services
Collateral requirements
Tax deduction disadvantage
Costs Included
Expected losses
Primary and excess premiums
Claims handling
Taxes
Assessments
Loss Control
Broker fees
Collateral
Fronting costs
Residual market loads
Boards and bureaus
State funds
