Running Header: ASSIGNMENT NO.

3 1

Assignment No. 3

Northern Caribbean University

FNCE437: Risk Management & Insurance (K)

Darian Watts

June 2, 2021
ASSIGNMENT NO. 3 2

Assignment No. 3

As you read this Assignment, you should develop a comprehension of how enterprise risk

management differentiates from traditional risk management, and also the legal distinctions

which separates an agent from a broker.

The proper definition of an ‘Enterprise Risk Management’ as stated in the Book

Principles of Risk Management and Insurance, is a wide-ranging risk management program that

deals with all of an organization’s risks, including pure risks, speculative financial risks, strategic

risks, and operational risks, just to name a few [CITATION Rej16 \p 89 \l 1033 ]. Traditional Risk

Management on the other hand – according to the online article ‘The Difference Between Risk

Management and Enterprise Risk Management’ – has always been reactive and erratic, rather

than proactive and systematic. Traditional risk management is often done after an incident has

occurred in order to avoid the same issue from occurring again [ CITATION Cow20 \l 1033 ]. Using

the definitions above, we were able to analyze that Traditional Risk Management, has had a

longer period of operation, however this does not necessarily make it the better choice, as we can

see Enterprise Risk Management not only covers a father range, but is also comprised making

assumptions of what may or may not occur thus reducing the possibility of being caught off

guard by unexpecting claims. For example, while a Traditional Risk Management may simply

offer a Bakery Coverage for Burglary and Property damage, Enterprise Risk Management would

possibly take into consideration the tools being used on premises such as fire hazards, thus

creating a policy which also has coverage for fire hazards, in which the Policies Premium would

reflect.

To the naked eye, an agent and a broker may appear to be the same position, however as

stated in the Book Principles of Risk Management and Insurance, this is not so. An Agent is a
ASSIGNMENT NO. 3 3

person who legally represents the principal and is authorized to act on their behalf [CITATION Rej16

\l 1033 ]. The book went on to clarify that the principal in this case would be the insurance

company which the agent is representing. Unlike an Agent who represents the insurer, a Broker

legally represents the insured despite receiving a commission from the insurer. Though the

definitions differ by a simple change of words-or-two, an Agent and a Broker certainly differ.

For Example, Company A the Mother Insurance Company sells insurance, in an attempt to

expand their network, they decided to take on request from Brokers, thus Company B begins to

advertise company A’s policies and collecting new clients for Company A, while also retaining a

portion of the premium collected. In this case Company B is at little to no risk, as they are not

responsible for paying claims which the clients submit, the primary duty of the Broker is to

expand their Portfolio with more clients, which at the same time benefits Company A. Agents in

this case can be either captive – employees of Company A – or Independent (working for

multiple Insurance Companies at a time).

In conclusion, we should now be able to differentiate between Traditional Risk

Management and Enterprise Risk Management, identifying the strengths which come along with

Enterprise Risk Management, and also, a better understanding of an Agent and a Broker

distinguishing between which would be considered the Insuree representative (Broker) and

which would be considered the Insurer representative (Agent)

ASSIGNMENT NO. 3 4

References

Cowell James Forge Insurance Group. (2020, December 10). Traditional Vs. Enterprise Risk

Management. Retrieved June 2021, from Cowell James Forge Insurance Group:

https://cjfig.com/blog/the-difference-between-risk-management-and-enterprise-risk-

management/

Rejda, G. E., & McNamara, M. J. (2016). Principles of Risk Management and Insurance (13th

ed.). Edinburgh Gate, Harlow, England: Pearson Education. Retrieved June 2021, from

Kin.