Basics of Risk Management , Methods of Risk Management, Technique used in Controlling Risk, with reference to General Insurance.

1. RISK MANAGEMENT
BASICS

2. What is RISK MANAGEMENT?
It is a systematic approach to identifying, measuring and controlling
risks that can threaten assets and earnings of oneself, a business or
the organization.

3. Why RISK MANAGEMENT?
Purpose of risk management is to make sure that the company only
takes the risks that will help it achieve its primary objectives while
keeping all other risks under control.

4. Risk Management Process
Identify and
monitor
Risk
Examine
Risk Mgt
Technique
Select Risk
Mgt
Technique
Implement
Technique
Monitor
Risk

5. Identify Potential Risk
Risk identification is the
process by which an
organization is able to
learn of the areas which
are exposed to risk.
Identification techniques
are designed to develop
information on sources of
risk, hazards, risk factors,
perils and exposures to
loss.

6. Losses
• Direct Loss (damage to building, Car, etc.) which can be repaired ,
replaced or reinstated.
• Consequential Loss
• Expense of cleaning up and removal of debris
• Loss of rent, revenue, and profit; until normalcy is restored
• Possible liability of losses for third party injuries

7. How to Understand/Measure Risk
• MAXIMUM POSSIBLE LOSS.
The total loss that can happen or we can say
the worst loss due to happening of single
event.
• PROBABLE MAXIMUM LOSS
• PML is the maximum percentage of risk that could
be subject to a loss at a given point in time.
• PML is the maximum amount of loss that an insurer
could handle in a particular area before being
insolvent.
• PML is the total loss that an insurer would expect to
incur on a particular policy.

8. Risk Matrix

9. How to Identify Risk
1) Questionnaires
2) Interviews
3) Financial Statements
4) Flow Charts
5) Personal inspection / Observation
6) SWOT , ETC

10. Method of Managing Risk
RISK
Identification
Prevention
Reduction
Retain
Transfer

11. Risk Control
Risk control efforts help organization avoid a risk,
prevent loss, lessen the amount of damage if a loss
occurs or reduce undesirable effects of risk on an
organization.

12. Risk Avoidance
 If someone is afraid of risks, the
best way to deal with it is to avoid
it completely.
Example; a manufacturer may stop
production of a defective products
to avoid a lawsuit.
 some risks are unavoidable, the
exposures of losses cannot be
eliminated entirely.

13. Risk Prevention
 Risk prevention is the process of reducing the probability and impact of risk
 Risk prevention includes all techniques and management practices that help to
prevent unnecessary or foreseeable risks.

14. Risk Reduction
 Designed to reduce or lower the severity of losses.
 Since some risks are unavoidable, the other alternative is
to reduce its impact.
Can be used in two circumstances:
Before a loss, e.g. installation of fire
alarm.
After a loss e.g. Salvage efforts in the
restoration of a building
burnt down by fire.

15. Loss Reduction Ways (Separation)
Involves the dispersal of the
firm’s assets in several
locations instead of confining it
to one major area.
Taking Keep away from
Instruction Seriously eg: on gas
cylinder.
This measure will reduce the
impact of losses when major
disaster occurs.

16. Loss Reduction Ways (Duplication)
This involve keeping “Back up” copies, so that loss will not interrupt
Business
Eg: Once due to power failure hard disk got crashed and company lost all
the vendor and customer detail. But there business didn’t get interrupted as
they were having back up files on cloud.

17. Loss Reduction Ways (Diversification)
It involves spreading the risk, across areas, which may not
affected equally.
Eg Investing money in different funds.
Mutual fund
Property
Gold

18. Loss Reduction Ways
(Contractual Transfer/Indemnity Agreements)
This risk transfer is a non-
insurance contract/agreement
between two parties whereby
one agrees to indemnify and
hold another party harmless
for specified actions,
inactions, injuries or
damages.
Eg: when you take car on rent
and make accident you pay.

19. Loss Reduction Ways
(Contractual Transfer/Hold Harmless Agreement)
A Hold Harmless Agreement is a
legal agreement that states that one
party will not hold another party liable
for risk, often physical risk or damage
Eg: An agreement between a retailer
and a manufacturer whereby the later
agrees to bear losses due to the
manufacturer of defective products
thus relieving the retailer of any
liability.

20. Loss Reduction Ways (Hedging)
Hedging is a strategy for
reducing exposure to
investment risk. An investor
can hedge the risk of one
investment by taking a
offsetting position in
another investment. The
values of the offsetting
investments should be
inversely correlated.

21. Risk Retention/ Self Insurance
Risk retention is a company's decision to take responsibility for a particular risk it
faces, as opposed to transferring the risk over to an insurance company.
Companies often retain risks when they believe that the cost of doing so is less then
the cost of fully or partially insuring against it
Risk or loss exposed are normally assumed or retained when their impact and
consequences are not too great or in cases when no other methods seem feasible.

22. Risk Transfer
• Transfer of the financial
consequences of potential
accidental losses from an
insured firm or family to an
insurer
• Transferring the risks to
another party involves a
contractual agreement
whereby the other party
assumes the risks and is liable
for the loss in the event of
loss.

23. Thank You.