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Ch3 Introduction to Risk Management (Steps in the Risk Management Process…
Ch3
Introduction to Risk Management
Meaning of Risk Management
a process that identifies loss exposure faced by an organization and selects the most appropriate techniques to treating such exposures
Steps in the Risk Management Process
Identifying Loss Exposure
Property Loss Exposures
Liability Loss Exposures
Business Income Loss Exposures
Human Resources Loss Exposures
Employee Benefit Loss Exposures (special example : violation of fiduciary(信託的) responsibilities)
Link Title
Foreign Loss Exposures (special example : kidnapping of key personnel)
Intangible Property Loss Exposures
Crime Loss Exposures
Failure to comply with government laws and regulations
Measure and Analyze the Loss Exposures
Loss Frequency (number of loss/number of exposure units)
Loss Severity
($ amount of claims/number of losses)
Probable Maximum Loss(預估的損失，參雜較多主觀想法)
Maximum Possible Loss(預估的實體價值損失)
Select the Appropriate Combination of Techniques for Treating the Loss Exposures
Risk Financing
Retention
under which condition
No Other Method of Treatment is Available
The Worst Possible Loss Isn't Serious
Losses Are Fairly Predictable
Determining Retention Levels
determining the maximum uninsured loss it can absorb without adversely affecting the company's earnings (usually 5%)
determining the maximum retention as a percentage of the firm's net working capital (the difference between a company's current assets and current liabilities) (not reflecting the firm's overall financial position for absorbing a loss)
Paying Losses with...
Current Net Income (不夠的話就用資產清償)
Unfunded Reserve (a bookkeeping account that is charged with actual or expected losses from a given exposure)
Funded Reserve (e.g. self-insurance program)(not income-tax deductible)
Credit Line (信用額度)
Risk Retention Groups(RRGs)
a group captive that can write any type of liability coverage except employers' liability, workers' compensation, and personal lines(似Captive Insurer)
Link Title
Captive Insurer
Definition
an insurer owned by a parent firm for the purpose of insuring the parent firm's loss exposures
Classification
Single-Parent Captive
Association / Group Captive
Reasons
Difficulty in Obtaining Insurance
Favorable Regulatory Environment
Lower Costs
Easier Access to a Reinsurer
Formation of a Profit Center
Seif-Insurance
defination
a special form of planned retention by which part or all of a given loss exposure is retained by the firm
usage
workers compensation
protected by some type of stop-loss limit that caps the employer's out-of -pocket costs once losses exceed certain limits(雇主自保員工賠償1百萬，超過1百萬的再另外保險)
Advantages and Disadvantages of Retention
Advantages
Save on Loss Cost
Save on Expenses
Encourage Loss Prevention
Increase Cash Flow
Disadvantages
Possible Higher Losses
Possible Higher Expenses
Possible Higher Taxes
Noninsurance Transfers
definition
methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party
example
Contract/Leases(租約)
Hold-Harmless Agreements
Incorporation of a Business
Advantages
often costs less than insurance
the potential loss mat be shifted to someone who is an a better position to exercise loss control
the risk manager can transfer some potential losses that are not commercially insurable
Disadvantages
the transfer of the potential loss may fail because the contract language is ambiguous. Also, there may be no court precedents for the interpretation of the contract tailor-made to fit the situation
if the party to whom the potential loss is transferred is unable yo pay the loss, the firm is still responsible for the claim
an insurer may not give credit for the transfers, and insurance costs may not be reduced
Commercial Insurance
key points
Selection of Insurance Coverage / Purchase Excess Insurance
Selection of Insurer
Negotiation of Terms
Dissemination(宣傳) of Information concerning Insurance Coverages
Periodic Review of the insurance Program
Advantages
不確定減少可助於公司照原定計畫走並，減少擔憂及恐懼
承保人可提供有價值的風險管理服務
損失發生時，公司會被保障、可持續營運，收入的波動會減少
保險費是企業支出，可減免所得稅
Disadvantages
The payment of premiums is major cost because the premium consist of (1)a component to pay losses,(2)an amount to cover the insurer's expenses(3)a allowance for profit and contingencies(4)opportunity costs
耗費時間與心力協談保險範圍
The risk manager may have less incentive to implement loss-control measures because the insurer will pay the claim if the loss occurs
Risk Control
Avoidance (but may leave the firm with a residual liability exposure from the sale of previous products)
Loss Prevention
Loss Reductiom
Duplication
Separation (dividing the assets exposed to loss to minimize the harm from singe event)
Diversification (reducing the chance of loss by spreading the loss exposure across different parties (e.g., customers and suppliers), securities (e.g., stocks and bonds), or transactions)
Implement and Monitor the Risk Management Program
Cooperation with Other Departments
Finance
Marketing
Operations
Human Resources
Accouting
Periodic Review and Evaluation
Necessities
Risk Management Manual
Risk Management Policy Statement
Objective of Risk Management
Pre-Loss Objectives
Economy (the firm should be prepare for potential losses in the most economical way
Reduction of Anxiety
Meeting Legal Obligations
Post-Loss Objectives
Survival of the Firm
Continued Operations
Stability of Earnings
Continued Growth
Social Responsibility
Personal Risk Management
Benefits of Risk Management
正式的風險管理計畫有助於公司達到損失前即損失後的目標