Advanced
PowerPoint
Presentation
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-1
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:
Outline
Key concepts
Major sections
Chapter summary
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-2
Contents
Techniques of Risk Management & Insurance
Ch 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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-3
Contents
Tools of Risk Management & Insurance
Ch 17 Commercial General Liability Insurance……………….17-1
Ch 18 The Workers’ Compensation System………………….18-1
Ch 19 Commercial Property Insurance………………………..19-1
Ch 20 Directors and Officers’ Liability Insurance……………..20-1
Ch 21 Employment-Related Practices Liability Insurance…..21-1
Ch 22 Business Automobile Insurance………………………..22-1
Ch 23 Crime Insurance………………………………………….23-1
Ch 24 Capital Markets Risk Transfer Tools…………………..24-1
Ch 25 Loss Control Tools……………………………………….25-1
Ch 26 The Certificate of Insurance…………………………….26-1
Ch 27 Surety Bonds……………………………………………..27-1
Ch 28 Claim Reviews……………………………………………28-1
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-4
Chapter 10
Loss 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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-5
Chapter 10
Loss Control Techniques
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-6
Chapter 10
Loss Control Techniques
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-7
Chapter 10
Loss 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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-8
Chapter 10
Loss 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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-9
Chapter 10
Loss Control Techniques
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-10
Chapter 10
Loss Control Techniques
The Five-step Process
1.
2.
3.
4.
Create a loss control Program
Risk (loss) Analysis
Loss control Solution Analysis
Loss control Decision Process

5. Loss control System Administration
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-11
Chapter 10
Loss Control Techniques
The Five-step Process
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-12
Chapter 10
Loss Control Techniques
The Five-step Process
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-13
Chapter 10
Loss Control Techniques
The Five-step Process
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-14
Chapter 10
Loss Control Techniques
The Five-step Process
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-15
Chapter 10
Loss Control Techniques
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)
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-16
Chapter 10
Loss Control Techniques
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)
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-17
Chapter 10
Loss 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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-18
Chapter 10
Loss Control Techniques
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
©2009 The National Underwriter Company
Dr. James Kallman, ARM
10-19