6. Risk Management process 6 Identify risks Evaluate & prioritize risks Monitor & improve the program Implement techniques Select risk management techniques
7. Risk Appetite 5 – High – accepts opportunities with inherent high risk 4 – Moderate – willing to accept risks 3 – Modest – Willing to accept some risks in certain circumstances 2 – Low – Not willing to accept risks in most circumstances 1 – Zero – Not willing to accept risks under any circumstances 7
8.
9. Event is an incident or occurrence stemming from internal or external sources
19. Risk Identification Techniques Survey or questionnaire Financial statements Records & files Flowchart Personal inspection Experts – Internal & external Loss experience Other nonprofits 10
22. Risk Management Process 13 3. Select and implement risk management techniques “What will we do?”
23. Risk Control Techniques Avoidance Loss Prevention - reduce likelihood Loss Reduction - reduce size of loss Segregation Separation Duplication Contractual transfer Legal & financial
30. Contract Review Process Before the contract is signed, it should be reviewed by: Someone not involved in the negotiations An attorney An insurance professional
31. Insurance Review – Why? Transfers liability Indemnification provisions Hold harmless agreement Liability limitation & exculpatory provisions Waiver of subrogation Insurance requirements These provisions can be in any part of the contract.
34. INDEMNIFICATION WARNINGS An indemnification or hold harmless agreement is only as good as the ability of the other party to pay If you are indemnitee, at fault and the other party cannot pay, you are still responsible for your negligent actions “Secure” all indemnification provisions with insurance
35. Contractual Liability iNSURANCE Only available under general liability policy An exception to an exclusion Must be an “insured contract” Only applies to “bodily injury” & “property damage”, NOT all losses Loss occurs after agreement reached Attorney fees & litigation expenses considered damages unless indemnitee agrees to several conditions.
36. “Insured Contract” Lease of premises Sidetrack agreement Any easement or license agreement Ordinance obligation to indemnify a municipality, except in connection with work of a municipality An elevator maintenance agreement And . . .
37. “Insured Contract” When you assume the tort liability of another to pay for “bodily injury” or “property damage” to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
38. Liability TRANSFER GoaLS Accept no more risk than can reasonably insure or finance Transfer the balance of risk to another party Use to insulate organization’s insurance & risk retention program Does not replace insurance
39. Guidelines Avoid assuming liability for sole negligence, willful acts, or punitive damages and fines Avoid liability for “any and all loss” Limit property damage to “tangible” property Ensure liability meets definition of “occurrence”
40. INSURANCE REQUIREMENTS Issues Use antiquated insurance coverage terms Comprehensive general liability Public liability All-risks Extended coverage Water damage liability Personal injury Contractual liability (to insure the agreement) Independent contractors coverage Policy limits – per accident, per person
41. INSURANCE REQUIREMENTS Issues Requires coverages not really needed Insurer must notify indemnitee if any “material changes”, cancellation or non-renewal (no insurer will do this) Insurers must be acceptable to indemnitee Request to be added as a named insured or additional named insured Waiver of subrogation
52. Other Liability Policies Umbrella/Excess Liability Professional Liability Employee Benefits Liability International Liability Pollution Liability Publishers or Media Liability Fiduciary Liability Electronic Liability 34
53. Volunteer Accident Policy Accidental bodily injury (Not illness or liability) Accidental Death, Dismemberment & Loss of Sight Medical Expenses Low limits Excess over personal health insurance (usually) Check exclusions – sports participant/team member, aircraft, etc. 35
IntroductionRisk management consultant for nonprofits & 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 & 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
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 & 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 & PD onlyAttorney fees & 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)
