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Other risk controls (Four risk management tools (Diversification (Lines of…
Other risk controls
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Underwriting
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Why?
(SAFARI)
Suitable special terms- identification of the most suitable approach and level for special terms to be offered to substandard risks
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Identify substandard risks, for which special terms need to be quoted- while aiming to accept as many risks as possible on standard premium rates.
Types
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Financial
Purpose to assess whether the proposed sum assured is reasonable relative to the financial loss that the applicant would suffer if the insured event occurs. The aim is to reduce the risk of over over-insurance.
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Dealing with low likelihood, high impact risks
Important to manage these risks in a measured way. Whilst they are very important and credit rating agencies and regulatory authorities are very interested in them, it is important not to concentrate unduly on these risks at the expense of other types of risk
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Some such risks have to be accepted, and the organisation then has to assess an appropriate amount of capital to hold against the risk event (e.g. by stress testing) - if the event lies within the company's risk tolerance.
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