1<br />8th Annual Nonprofit Institute <br />Risk Analysis for the Nonprofit<br />May 18, 2010<br />Leslie T. White<br />CP...
Learning Objectives<br />2<br />
3<br />Innovation requires risk taking.  Taking risks requires informed, fact-based Decision making.<br />
4<br />Risk Management<br />A discipline for dealing with the possibility that some future event may cause unexpected resu...
Dealing with uncertainty . . .<br />5<br />
Risk Management process<br />6<br />Identify risks<br />Evaluate & prioritize risks<br />Monitor & improve the program<br ...
Risk Appetite<br />5 – High – accepts opportunities with inherent high risk<br />4 – Moderate – willing to accept risks<br...
Risk identification<br /><ul><li>Identifying potential events that if it occurs will affect organization
Event is an incident or occurrence stemming from internal or external sources
Outcome can be positive, negative or both</li></ul>8<br />
Risk Identification Process<br />9<br />Nonprofit Assets		Dimensions of Risk<br /><ul><li>Operational
Legal
Political
Financial & market
People
Property
Income
Goodwill</li></ul>“What could go wrong?”<br />
Risk Identification Techniques<br />Survey or questionnaire<br />Financial statements<br />Records & files<br />Flowchart<...
Risk Evaluation<br />Frequency<br /><ul><li>	Likelihood of event occurring (frequency)</li></ul>Severity<br /><ul><li>Pote...
Prouty Approach<br />12<br />Frequency<br />Severity<br />
Risk Management Process<br />13<br />3. Select and implement risk management techniques<br />“What will we do?”<br />
Risk Control Techniques<br />Avoidance<br />Loss Prevention - reduce likelihood<br />Loss Reduction - reduce size of loss<...
Risk Financing Techniques<br />Retention<br />Transfer<br />15<br />
Transfer/Sharing<br /><ul><li>Contractual transfer
Indemnification Agreement
Hold Harmless
Financial transfer
Insurance</li></ul>16<br />
Contract Review Process<br />Before the contract is signed, it should be reviewed by:<br />Someone not involved in the neg...
Insurance Review – Why?<br />Transfers liability <br />Indemnification provisions<br />Hold harmless agreement<br />Liabil...
INDEMNIFICATION<br />Indemnitee- Receives payment or protection from another<br />Indemnitor -Agrees to pay another<br />
Indemnification Agreements<br />Limited<br />Intermediate<br />Broad<br />Many states limit or prohibit<br />Many insuranc...
INDEMNIFICATION  WARNINGS<br />An indemnification or hold harmless agreement is only as good as the ability of the other p...
Contractual Liability iNSURANCE<br />Only available under general liability policy<br />An exception to an exclusion<br />...
“Insured Contract”<br />Lease of premises<br />Sidetrack agreement<br />Any easement or license agreement<br />Ordinance o...
“Insured Contract”<br />When you assume the tort liability of another to pay for “bodily injury” or “property damage” to a...
Upcoming SlideShare
Loading in …5
×

Risk analysis pbi

1,217 views

Published on

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,217
On SlideShare
0
From Embeds
0
Number of Embeds
7
Actions
Shares
0
Downloads
44
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • IntroductionRisk management consultant for nonprofits &amp; associationsInsurance background for 20 yearsDesignations
  • To learn how to identify and analyze liability risksTo explore risk transfer techniquesIndemnification Hold harmlessInsurance requirements To explore insurance options
  • One of the why’s for risk management, helps you make informed decisionsGOALThe first standard that should be in effect for any organization is the safety of its constituents.
  • PURPOSE of RMTo provide value to stakeholdersTo help nonprofits get to where they want to go To avoid pitfalls &amp; surprisesTo enhance value, achieve the mission
  • Determine how much uncertainty (risk and opportunity) you are prepared to accept as strive to grow value, achieve missionPre-loss exercise that reflects the nonprofit’s post-loss goals and reflective of the organization’s cultureTo identify potential events that if they occur would affect the nonprofitEvents can have negative, positive or both impactTo manage risks within your risk appetiteRisk management enable management to effectively deal with uncertainty and associated risk and opportunityHelps management achieve performance targets and prevent loss of resources
  • What can go wrong?What will we do?How will we pay for it?
  • Risk Appetite – The amount of risk, on a broad level, an entity is willing to accept in pursuit of values. It reflects the entity’s risk management philosophy , and in turn influences the entity’s culture and operating style. (COSO)Risk Tolerance – Acceptable level of variation relative to achievement of a specific objective, and often is best measured in the same units as those used to measure the related objective, (COSO)
  • What can go wrong?Potential events that will affect the organizationIdentify loss exposures (possible future loss)Value exposed to lossPerils causing lossFinancial consequencesNaturalwind, flood, tornado, lightningHumantheft, negligence, vandalismEconomicgovernmental actions, strikes, technologyExternalEconomicNatural environmentPoliticalSocialTechnologicalInternalInfrastructurePersonnelProcessTechnology
  • OPERATIONALPersonnelPhysical damageConsequentialCriminalDataLEGALContractual liabilityTort liabilityStatutory liabilityPOLITICALSocial actionLawsRegulationsFINANCIALInvestmentsInterest rateBankingCredit
  • Limited – comparative fault agreement. Obligates indemnitor to only pay to extent of its own fault.Intermediate –Indemnitor assumes all liabilities except for any injury or damage caused by the indemnitee’s sole negligence.BROAD – Indemnitor assumes unqualified obligation to indemnify indemnitee for all liability associated with the agreement, regardless of which party was actually at fault. Even if sole negligence of indemnitee.
  • Agreement only as good as ability for other party to payEven if indemnitee, it’s your fault &amp; other party can’t pay, you have toMake sure you have insurance that will cover the situation
  • Contractual; liability coverage - CGL only All other policies have a contractual exclusion – may cover defense cost for breach of contractIt’s an exception to an exclusion, not a separtae coverageMust meet definition of INSURED CONTRACT as defined by policyBI &amp; PD onlyAttorney fees &amp; litigation fees for indemnitee included as damages. Can be supplemental payments but indemnitee must agree to 6 conditions (they may not be willing to agree to)
  • BI &amp; PD only
  • Risk analysis pbi

    1. 1. 1<br />8th Annual Nonprofit Institute <br />Risk Analysis for the Nonprofit<br />May 18, 2010<br />Leslie T. White<br />CPCU, CIC, ARM, CRM<br />Croydon Consulting, LLC<br />
    2. 2. Learning Objectives<br />2<br />
    3. 3. 3<br />Innovation requires risk taking. Taking risks requires informed, fact-based Decision making.<br />
    4. 4. 4<br />Risk Management<br />A discipline for dealing with the possibility that some future event may cause unexpected results<br />Dealing with uncertainty . . .<br />
    5. 5. Dealing with uncertainty . . .<br />5<br />
    6. 6. Risk Management process<br />6<br />Identify risks<br />Evaluate & prioritize risks<br />Monitor & improve the program<br />Implement techniques<br />Select risk management techniques<br />
    7. 7. Risk Appetite<br />5 – High – accepts opportunities with inherent high risk<br />4 – Moderate – willing to accept risks<br />3 – Modest – Willing to accept some risks in certain circumstances<br />2 – Low – Not willing to accept risks in most circumstances<br />1 – Zero – Not willing to accept risks under any circumstances<br />7<br />
    8. 8. Risk identification<br /><ul><li>Identifying potential events that if it occurs will affect organization
    9. 9. Event is an incident or occurrence stemming from internal or external sources
    10. 10. Outcome can be positive, negative or both</li></ul>8<br />
    11. 11. Risk Identification Process<br />9<br />Nonprofit Assets Dimensions of Risk<br /><ul><li>Operational
    12. 12. Legal
    13. 13. Political
    14. 14. Financial & market
    15. 15. People
    16. 16. Property
    17. 17. Income
    18. 18. Goodwill</li></ul>“What could go wrong?”<br />
    19. 19. Risk Identification Techniques<br />Survey or questionnaire<br />Financial statements<br />Records & files<br />Flowchart<br />Personal inspection<br />Experts – Internal & external<br />Loss experience<br />Other nonprofits<br />10<br />
    20. 20. Risk Evaluation<br />Frequency<br /><ul><li> Likelihood of event occurring (frequency)</li></ul>Severity<br /><ul><li>Potential financial & operational impact </li></ul>11<br />
    21. 21. Prouty Approach<br />12<br />Frequency<br />Severity<br />
    22. 22. Risk Management Process<br />13<br />3. Select and implement risk management techniques<br />“What will we do?”<br />
    23. 23. Risk Control Techniques<br />Avoidance<br />Loss Prevention - reduce likelihood<br />Loss Reduction - reduce size of loss<br />Segregation<br />Separation<br />Duplication<br />Contractual transfer<br />Legal & financial<br />
    24. 24. Risk Financing Techniques<br />Retention<br />Transfer<br />15<br />
    25. 25. Transfer/Sharing<br /><ul><li>Contractual transfer
    26. 26. Indemnification Agreement
    27. 27. Hold Harmless
    28. 28. Financial transfer
    29. 29. Insurance</li></ul>16<br />
    30. 30. Contract Review Process<br />Before the contract is signed, it should be reviewed by:<br />Someone not involved in the negotiations <br />An attorney<br />An insurance professional<br />
    31. 31. Insurance Review – Why?<br />Transfers liability <br />Indemnification provisions<br />Hold harmless agreement<br />Liability limitation & exculpatory provisions<br />Waiver of subrogation<br />Insurance requirements<br />These provisions can be in any part of the contract.<br />
    32. 32. INDEMNIFICATION<br />Indemnitee- Receives payment or protection from another<br />Indemnitor -Agrees to pay another<br />
    33. 33. Indemnification Agreements<br />Limited<br />Intermediate<br />Broad<br />Many states limit or prohibit<br />Many insurance policies won’t cover<br />20<br />
    34. 34. INDEMNIFICATION WARNINGS<br />An indemnification or hold harmless agreement is only as good as the ability of the other party to pay<br />If you are indemnitee, at fault and the other party cannot pay, you are still responsible for your negligent actions<br />“Secure” all indemnification provisions with insurance<br />
    35. 35. Contractual Liability iNSURANCE<br />Only available under general liability policy<br />An exception to an exclusion<br />Must be an “insured contract”<br />Only applies to “bodily injury” & “property damage”, NOT all losses<br />Loss occurs after agreement reached<br />Attorney fees & litigation expenses considered damages unless indemnitee agrees to several conditions.<br />
    36. 36. “Insured Contract”<br />Lease of premises<br />Sidetrack agreement<br />Any easement or license agreement<br />Ordinance obligation to indemnify a municipality, except in connection with work of a municipality<br />An elevator maintenance agreement<br />And . . .<br />
    37. 37. “Insured Contract”<br />When you assume the tort liability of another to pay for “bodily injury” or “property damage” to a third person or organization.<br />Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.<br />
    38. 38. Liability TRANSFER GoaLS<br />Accept no more risk than can reasonably insure or finance<br />Transfer the balance of risk to another party<br />Use to insulate organization’s insurance & risk retention program<br />Does not replace insurance<br />
    39. 39. Guidelines<br />Avoid assuming liability for sole negligence, willful acts, or punitive damages and fines<br />Avoid liability for “any and all loss”<br />Limit property damage to “tangible” property<br />Ensure liability meets definition of “occurrence”<br />
    40. 40. INSURANCE REQUIREMENTS Issues <br />Use antiquated insurance coverage terms<br />Comprehensive general liability<br />Public liability<br />All-risks<br />Extended coverage<br />Water damage liability<br />Personal injury<br />Contractual liability (to insure the agreement)<br />Independent contractors coverage<br />Policy limits – per accident, per person<br />
    41. 41. INSURANCE REQUIREMENTS Issues<br />Requires coverages not really needed<br />Insurer must notify indemnitee if any “material changes”, cancellation or non-renewal (no insurer will do this)<br />Insurers must be acceptable to indemnitee<br />Request to be added as a named insured or additional named insured<br />Waiver of subrogation<br />
    42. 42. Commercial General Liability<br />29<br />Coverages<br /><ul><li>Bodily Injury & Property Damage
    43. 43. Personal & Advertising Injury
    44. 44. Medical Payments</li></li></ul><li>Special Events Insurance<br />30<br /><ul><li>Commercial General Liability
    45. 45. Hired & Nonowned Auto Liability</li></ul>EVENT CANCELLATION<br /><ul><li>Lost revenues
    46. 46. Lost expenses</li></li></ul><li>Business Auto liability<br />31<br />Liability<br /><ul><li>Bodily Injury & Property Damage
    47. 47. Owned Vehicles
    48. 48. Nonowned & Hired Autos</li></li></ul><li>Directors & Officers Liability<br />32<br />“Wrongful Acts” <br /><ul><li>Directors, Officers, Trustees
    49. 49. Employees, volunteers</li></ul>Personal Injury & Publishers Liability<br />Employment Practices Liability<br /><ul><li>Wrongful Termination
    50. 50. Sexual Harassment
    51. 51. Discrimination</li></li></ul><li>Workers Compensation<br />Statutory Benefits<br />Medical v. Indemnity<br />Independent Contractor v. Employee<br />Employer’s Liability<br />“Arising out of and in the course of employment”<br />Employee suits<br />33<br />May or may not cover volunteers<br />
    52. 52. Other Liability Policies<br />Umbrella/Excess Liability<br />Professional Liability <br />Employee Benefits Liability<br />International Liability<br />Pollution Liability<br />Publishers or Media Liability<br />Fiduciary Liability<br />Electronic Liability<br />34<br />
    53. 53. Volunteer Accident Policy<br />Accidental bodily injury (Not illness or liability)<br />Accidental Death, Dismemberment & Loss of Sight<br />Medical Expenses<br />Low limits<br />Excess over personal health insurance (usually)<br />Check exclusions – sports participant/team member, aircraft, etc.<br />35<br />
    54. 54. Risk Management Process<br />36<br />4. Monitor and update the<br /> program<br /><ul><li>Compare actual to expected results
    55. 55. Any new programs, activities or risks?
    56. 56. Changes in mission or strategy?</li></li></ul><li>Croydon Consulting, LLC<br />37<br />Leslie T. White, CPCU, CIC, ARM, CRM<br />P. O. Box 1414<br />Severna Park, MD 21146-8414<br />410-544-0913 Fax 410-544-9913<br />Email: Lwhite@croydonconsult.com<br />www.croydonconsult.com<br />Twitter: @Ltwhite<br />

    ×