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 value creation and sustainability
“Two Faces of Risk”
Insurability
Significance to business
“Menu 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 Financial Risk
Frequency type risk Political Risk
Physical Damage Patent Infringement
Property Damage
Credit Risk
Product Recall
Product Liability
LOW CLAIMS FREQUENCY
LOW SEVERITY HIGH SEVERITY
Environmental Impairment Risk
Not insurable
budgetable costs in one financial period
insurable / Expected costs in more than one financial period
hedgeable
Unexpected costs
Partly insurable / hedgeable
(Residual) Risk Transfer
The last step of the RM process
Risk Analysis Risk Control
−known
avoid
−risks
Known
−reduce
Risks reduce
Risk Universe
transfer
Target
retain
Unknown
Risks Residual
Risks
Conclusion:
the “Virtuous Circle of Risk Management”
Best RM practices allow insurers Best product allows RM to maximize
to offer best possible product protection at lowest “cost of risk”
Recap: optimization factors
Risk Assessment • Understanding risks
Loss Prevention • Reducing risks
Risk Engineering • Controlling risks
Risk Transfer • Optimizing cost of risks
ART • Financing risks
Claims management • 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
Process and policy development, implementation
Analysis of tasks, results, incidents
Cost of risk - long term volatility
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
frequency& severity
probable maximum loss
& actuarially fair premium
Pricing
Underwriting & adverse selection
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
Employer-
Provided
Benefits
Absorb social Influence
Are increasingly Average over
costs for health employee
seen as 40% of total
care and decisions about
entitlements payroll costs
retirement employers
Effective benefits management