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: Communication Strategy/General Claims Management Safety/Loss Control Claims Analysis Risk Financing RM Advice Management Reporting Risk Management Administration Advice Key Partnership Building Executive Management Internal Audit Operations/Unions Human Resources Benefits Planning Construction Real Estate Contracts Admin. Safety/Security Risk Management (Traditional Role) Legal Regulatory Compliance Insurers 3rd Party Administrators Finance Accounting Brokers Major Types of Exposures Property Liability Buildings-Business Personal Property Rolling Stock- Personal Property of Others 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 Remedy High High Avoid High Low Retain Low Low Retain Low High Transfer Risk Mapping Approach Frequency and Severity Interaction 5 High Severity High Impact High Impact Low Likelihood High Likelihood Transfer Avoid 2.5 Low Severity 0 Low Impact Low Impact Low Likelihood High Likelihood Retain Retain 5 2.5 0 Low Frequency High Frequency 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 Net Cash Flow $1,600,000 $1,400,000 $1,200,000 $1,505,963 972,424 972,424 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 972,424 $787,871 $428,825 Optimistic Expected Loss Scenario Pessimistic 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 Questions?