Risk is virtually anything that threatens or limits the ability of a community or nonprofit organization to achieve its mission.

` It can be unexpected and unpredictable events ` Risk can be defined as the combination of the probability of an event and its consequences
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Risk - Unpredictable Outcome

Pure and Speculative Risk
A pure risk is one in which there are only the possibilities of loss or no loss (earthquake) A speculative risk is one in which both profit or loss are possible (gambling)

Fundamental and Particular Risk

A fundamental risk affects the entire economy or large numbers of persons or groups (hurricane) A particular risk affects only the individual (car theft)

Enterprise Risk
Enterprise risk encompasses all major risks faced by a business firm, which include: pure risk, speculative risk, strategic risk, operational risk, and financial risk

Speculative Risk
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Pure Risk
Property destruction Injury to employees on the job Illness or death Injury to customers and third parties Damage to the property of others

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Starting a business Introducing a new product/entering a new market Investing in a security Change in government regulation Social change

Risk Neutral - Indifferent Toward Risk Value of Risky Situation is Expected Loss Risk Averse - Prefer to Avoid Risk Willing to Pay More than Expected Loss to Avoid Risk Risk Seeker - Prefer Risk Would Pay More than Expected Return to Engage in Risky Situation

Risk management is a process of thinking systematically about all possible risks, problems or disasters before they happen and setting up procedures that will avoid the risk, or minimize its impact, or cope with its impact.

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What can go wrong? What will we do to prevent it? What will we do if it happens?

For your own safety For the safety of the people you are trying to help The threat of possible litigation ( From Company Point of view)

Make someone Responsible for risk management 2. Review your Group & identify risk a. Occupational health & Safety Risk b. Financial & administrative Risk c. Unique Risk - Professional Risk - General Liability - Litigation 3. Fix What you Can Fix
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Evaluating & Prioritizing Risk

High probability Low impact Low probability Low impact High Probability High Impact Low Probability High Impact

Risk treatment is the process of selecting and implementing measures to modify the risk. Risk treatment includes as its major element, risk control/mitigation, but extends further to, for example, risk avoidance, risk transfer, risk financing. Four Element :`

Risk Control Risk Avoidance Risk Transfer Risk Financing

Risk control is the entire process of policies, procedures and systems an institution needs to manage prudently all the risks resulting from its financial transactions, and to ensure that they are within the bank's risk appetite. To avoid conflicts of interests, risk control should be separated from and sufficiently independent of the business units, which execute the firm's financial transactions,

It is a technique of Risk Management that involve a. Taking Steps to remove a hazard b. Engage in alternative activity c. making a decision not to enter into a new way of working because of the inherent risks this would introduce

Risk can be transferred in two ways. Through insurance contract aspects of e-commerce function to a third party out

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Risk Financing (RF) is a process to determine the strategy achieving the optimal balance between retaining and transferring risk within an organization. Alternative risk finance is the use of products and solutions which have grown out of the convergence of the banking and insurance industry. They include finite risk products such loss portfolio transfers and adverse development covers.

Insurance is a social device in which a group of individuals (insurers) transfer risk to another party (insurer) in order to combine loss experience, which permits statistical prediction of losses and provides for payment of losses from funds contributed (premiums) by all members who transferred risk

Gambling Creates Risk Insurance Transfers Existing Risk Gambling is Speculative Risk Insurance Deals with Pure Risk

RECENT CHANGES IN INSURANCE SECTOR

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1818- Oriental Life Insurance Co. was established in Calcutta. 1870- The first insurance company, Bombay Mutual Life Insurance Society, was formed. 1907- The Indian Mercantile Insurance Limited was formed. 1912- life Insurance Companies Act and the Pension Fund Act of 1912 Beginning of formal insurance regulations 1928- The Indian Insurance Companies Act was passed to collect statistical data on both life and non-life. 1938- The Insurance Act of 1938 was passed; there was strict state supervision to control frauds. 1956 - The Central Government took over 245 Indian and foreign life insurers as well as provident societies and nationalized these entities.

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The LIC Act of 1956 was passed. 1957 The code of conduct by the General Insurance Council to ensure fair conduct and ethical business practices was framed. 1972 The General Insurance Business (Nationalization) Act was passed. 1991 Beginning of economic liberalization 1993 The Malhotra Committee was set up to complement the reforms initiated in the financial sector. 1994 Detariffication of aviation, liability, personal accidents and health and marine cargo products 1999 The Insurance Regulatory and Development Authority (IRDA) Bill was passed in the Parliament. 2000 IRDA was incorporated as the statutory body to regulate and register private sector insurance companies.

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General Insurance Corporation (GIC), along with its four subsidiaries, i.e., National Insurance Company Ltd., Oriental Insurance Company Ltd., New India Assurance Company Ltd. and United India Assurance Company Ltd., was made Indias national reinsurer. 2005 Detariffication of marine hull 2006 Relaxation of foreign equity norms, thus facilitating the entry of new players 2007 Detariffication of all non-life insurance products except the auto third-party liability segment

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The minimum paid-up equity capital requirement has been set at INR1 billion. IRDA has come up with the following disclosure norms: IRDA has issued disclosure norms for insurance companies, mandating them to publish accounts on a half yearly basis. The disclosure norms are seen as a precursor to allowing insurance companies to hit the primary market. According to the new norms, insurers will have to publish their balance sheet on a half-yearly basis, starting from the period ending 31 March 2010. Disclosures to be made for a company launching an IPO All financial disclosures for the past five years prior to the IPO have to be available on the company website. Insurance companies have to disclose the data on various parameters such as the calculation of economic capital, surrender and lapse experience of business and expense patterns for the five-year period.

Insurance companies that intend to go public would also need to disclose required and available solvency margins for five years, capital structure and details of investment performance. IRDA has also instructed all life insurers to explicitly disclose, in their benefit Illustration document, the exact amount of commission/brokerage paid by insurers to insurance agents. This circular came into effect from 1 July 2010. Insurers would be allowed to charge up to 4% on annual premium paid on ULIPs for the first five years, and thereafter, This figure narrows down to 3% by the tenth year in a tapered scale, ending with 2.25% after the fifteenth year. The new guidelines apply from 1 September 2010. Earlier, the regulator had allowed commissions charged by agents to not exceed 40%.

For single-premium products, the maximum commission rate is 2% of the premium paid, and for regular premium products, the rate is in the range of 15%30% of premium in the first year, followed by 5% 7% in the subsequent years. According to the draft guidelines, all life insurance agents will have to gather a minimum of INR150,000 as the first-year premium or sell a minimum of 20 life insurance contracts. When an agent falls short of achieving either of the above, they would have to proportionately achieve more in either one to make up for the shortfall. Where the average annual persistency ratio is less than 50%, the license of the agent will not be renewed.

The insurance regulator has reduced the waiting period for an insurance company to make an IPO from 10 years to 5 years after commencing operations. IRDA has finalized its IPO guidelines and has sent them to the Securities and Exchange Board of India (SEBI). The norms for correct valuation, disclosure of operating results and profit and loss account and filing of the draft red herring prospectus are the three essentials that a company has to fulfill when opting for a public float.

IRDA has allowed insurance companies to offer Health plus Life Combo Product, a policy that would provide life cover along with health insurance to subscribers The sale of combi products can be made through direct marketing channels, brokers and composite individual and corporate agents, common to both insurers. Under the Combi Product, the underwriting of the respective portion of the risks will be underwritten by respective insurance companies, i.e., life insurance risk will be underwritten by the life insurance company and the health insurance portion of risk will be underwritten by the non-life insurance company.

Lock-in period: IRDA has increased the lock-in period for all ULIPs from three years to five years Level paying premiums: All regular premium/limited premium ULIPs will have uniform/level paying premiums Even distribution of charges: The charges on ULIPs are mandated to be evenly distributed during the lock-in period in order to eliminate high front ending of expenses Increase in risk component: Further, all ULIPs, other than pension and annuity products, will provide a mortality cover or a health cover

Cap on surrender charges: IRDA has recommended a cap on the surrender charges at up to 15% of the fund value in the first year for policies with a tenor more than 10 years and 12.5% for policies with a tenor of less than 10 years. This charge comes down to 5% and 2.5%, respectively, in the fifth year of the policy, and becomes nil for policies of less than 10 years after the fifth year. For tenors above 10years, the charge in the sixth year is 2.5%, which becomes nil in the seventh year.