TUTORIAL (3)

Introduction to Risk Management

 Define “Risk management”.

Risk management: is a process that identifies

loss exposures faced by an organization and
selects the most appropriate techniques for
treating such exposures.
Mention the Benefits of Risk Management.

1. Enables the firm to attain its pre-loss and post-loss objectives more
easily.
2. Reduce a firm’s cost of risk, which may increase the company’s
profit. The cost of risk is a risk management tool that measures the
costs associated with treating the organization’s loss exposures.
These costs include insurance premiums paid, retained losses,
loss control expenditures, outside risk management services, financial
guarantees, internal administrative costs, taxes, fees, and other
relevant expenses
3. Because the adverse financial impact of pure loss exposures is
reduced, the firm may be able to implement an enterprise risk
management program to treat both pure and speculative loss
exposures.
4. Society benefits because both direct and indirect (consequential)
losses are reduced
 - Briefly mention the Objectives of Risk
Management:

Risk management has important objectives. These

objectives can be classified as follows:
Pre-loss objectives, and post-loss objectives.
Pre-Loss Objectives:
1. The Firm Should Prepare for the Potential Losses in the
Most Economical Way.
2. The Reduction of Anxiety.
3. To Meet Legal Obligation.

Post-Loss Objectives:
1. Survival of the Firm:
2. Continue Operation:
3. Stability of Earning:
4. Continued Growth of The Firm:
5. Social Responsibility:
 -Choose
The following are the Steps in the Risk
Management Process EXCEPT:

1. Pooling of losses.
2. Measure and analyze the loss exposure.
3. Select the appropriate combination of
techniques for treating the loss exposure.
4. Implement and monitor the risk
management program.

1. Pooling of losses.
 - The first step in the risk management process is
to identify all major and minor loss exposures.
Discuss the statement.

This step involves an exhaustive review of all potential

losses. Important loss exposures include the following:
1. Property loss exposures: buildings, plants, furniture,
equipment, inventory.
2. Liability loss exposures: defective productive,
environmental pollution.
3. Business income loss exposures: loss of income from a
covered loss.
4. Human recourses loss exposures: death of key employees,
retirement, and unemployment.
5. Crime loss exposure: employee theft and dishonesty,
internet, and computer crime exposure.
6. Employee benefit loss exposure: failure to pay promised
benefit, retirement plan exposure.
7. Foreign loss exposure: foreign currency and interest rate
risks, political risks, and acts of terrorism.
8. Intangible property loss exposures: damage to the
company’s public image, loss of goodwill, and market
reputation.
9. Failure to comply with government rules and regulations.
 - Choose
Risk Managers have several sources of information to
identify loss exposures:

A) Risk Analysis Questionnaires and Checklists.

B) Flowcharts.
C) Physical Inspection.
D) Future loss data.
E) All the above Except D.
F) A and C

(E) All the above Except D.

 - True or False
Loss frequency refers to the probable size of the
losses that may occur. Loss severity refers to
the probable number of losses that may occur
during some given time period.

False
Loss frequency refers to the probable number of losses
that may occur during some given time period. Loss
severity refers to the probable size of the losses that may
occur.
 - Complete the following:
In the step of Selecting the Appropriate
Combination of Techniques for Treating Loss
Exposure: These techniques can be classified broadly as
either …………… or………….

Risk control, Risk financing.

 Discuss briefly Risk control and Risk financing.

Risk control refers to techniques that reduce the frequency or

severity of losses. Major risk-control techniques include
Avoidance, Loss Prevention, Loss reduction, Duplication,
Separation, and Diversification.
Risk financing refers to techniques that provide for the funding
of losses after they occur. Major risk-financing techniques
include Retention, non-insurance transfers, and Commercial
insurance.
 - Discuss step four in the Risk Management steps.

The fourth step is: Implement and Monitor the Risk Management Program.
This step begins with a policy statement.

1. A risk Management Policy Statement is necessary to have an effective

risk management program. This statement outlines the risk management
objectives of the firm, as well as company policy with respect to the treatment of
loss exposures.

2. Risk Management Manual

A risk management manual often includes a list of insurance policies, agent, and
broker contact information, and whom to contact when a loss occurs. The
manual describes in some detail the risk management program of the firm. It
forces the risk manager to state precisely his or her responsibilities, objectives,
and available techniques.

3. Cooperation with Other Departments

The risk manager does not work alone. Other functional departments within the
firm are extremely important in identifying loss exposures. Such as the following
departments: Accounting, Finance, Operations, Marketing, and Human resources
Department.

4. Periodic Review and Evaluation:

The risk management program must be periodically reviewed and evaluated to
determine whether the objectives are being attained or if corrective actions are
needed. Risk management costs, safety programs, and loss prevention programs
must be carefully monitored. the risk manager must determine whether the firm’s
overall risk management policies are being carried out and whether the risk
manager is receiving cooperation from other departments.
Thank you