RM 369K MANAGING EMPLOYEES BENEFITS
Review of selected chapters
agenda
Risk management basics Risk management and the enterprise - identification Risk to the enterprise – analysis Risk management process - alternatives
Role of insurance Role of contracts Avoidance Loss prevention, engineering, claims management
Cost of risk, monitoring & maintenance Employer provided benefits – glossary, costs & benefits
Risk Management basics
Risk and uncertainty – what is the challenge?
Employees Business
“Two
value creation and sustainability
Faces of Risk”
Insurability
Significance
“Menu
to business
Foods Income Fund”
Global risks: political, operational Products: recall expenses, liability for damages Stakeholder and loss of income, customers, reputation
Risks to the enterprise - identification
Risks to the enterprise - analysis
Links
Risk mapping has five main objectives:
To aid in the identification of risks and their interrelations To provide a mechanism to see clearly what risk management strategy would be the best to undertake To compare and evaluate the firm’s current risk handling and to aid in selecting appropriate strategies To show the leftover risks after all risk mitigation strategies are put in place To easily communicate risk management strategy to both management and employees
Risk Mapping: example
HIGH CLAIMS FREQUENCY Frequency type risk Financial Risk Political Risk Patent Infringement
Physical Damage
Credit Risk
Property Damage
Product Recall
LOW CLAIMS FREQUENCY LOW SEVERITY HIGH SEVERITY Environmental Impairment Risk Not insurable
Product Liability
budgetable costs in one financial period insurable / hedgeable
Partly insurable / hedgeable Expected costs in more than one financial period Unexpected costs
(Residual) Risk Transfer The last step of the RM process
Risk Analysis
−known −risks
Risk Control
avoid
Risk Universe
Known Risks
−reduce
reduce
transfer
Unknown Risks
retain
Target
Residual Risks
Conclusion: the “Virtuous Circle of Risk Management”
Best RM practices allow insurers to offer best possible product Best product allows RM to maximize protection at lowest “cost of risk”
Recap: optimization factors
Risk Assessment Loss Prevention Risk Engineering Risk Transfer ART Claims management • • • • • • Understanding risks Reducing risks Controlling risks Optimizing cost of risks Financing risks Managing adverse consequences
COST OF RISK
How is this possible ? It’s just good Risk Management !
Cost of Risk
Role of ERM - Enterprise Risk Management
and policy development, implementation Analysis of tasks, results, incidents Cost of risk - long term volatility
Process
Tools
Risk
mapping Residual risk transfer Virtuous circle of risk management – optimization factors
What is a risk map used for?
a) a discussion of speculative risks b) to delineate steps to profile risks c) to underscore the urgency to study risk d) as a visual tool to consider alternatives of risk management
ERM & Insurance
Client or insurer? Quality assessment Quantity assessment
& severity probable maximum loss
frequency
& actuarially fair premium Underwriting & adverse selection
Pricing
What is a risk management policy statement?
a) an insurance policy b) communicates risk management objectives of the company c) financial documents by the corporate treasurer d) evaluates process, measures frequency and severity of all risks to the organization
What is the purpose of doing a risk map?
a) to communicate risk management objectives of the company b) to chart entire spectrums of risk from each separate business unit c) to determine risk tolerance d) to find alternative solutions to managing risk
Having a contract for a warranty or purchasing insurance for a potential accident are examples of what kind of risk solution?
a) avoidance b) retention – with loss control – risk reduction c) retention – self-insurance d) transfer of risk – insurance
Review of course calendar – concepts, terms
Risk & Society
Theories "Pure" risk, perils, hazards Direct and indirect loss Pre and post-loss risk management Environmental health/safety; life safety Corporate policy statements and CSR reports Self-insurance, loss control, risk mapping Limits Contracts, hold harmless, bonding
Roles: Insurance and Risk
Insurance: Solutions, Institutions and Operations Types of insurance: gov't, private, etc Law of large numbers: pooling and homogeneity Insurer side:
affordability/availability indemnification insurance product overview reinsurance
Insurable risk characteristics, exclusions Public Policy, Regulatory side - licensing, admitted and E & S Advisory bureaus, markets, classes of insureds/occupancies Legal side, remedies, contracts Standards Insurance (risk transfer), investment, loan?
Roles: Employer & Enterprise Risk Management
Evolution of Risk Management; ERM Employment
what
is an employee cost of risk
Use of contracts & agreements Using insurance contract Retaining risk, use of captives, third-party administrators, self-insurance funds Catastrophe bonds, capital markets
Distribution of benefit dollar
Total compensation: break-down
Employer-provided benefits
EmployerProvided Benefits
Absorb social costs for health care and retirement
Influence employee decisions about employers
Are increasingly seen as entitlements
Average over 40% of total payroll costs
Effective benefits management