RISK MANAGEMENT &

INSURANCE
M.RAJARAM
J.B.BODA INSURNACE BROKERS
PRIVATE LIMITED
NEW DELHI
ROUTE MAP FOR THE SESSION
DEFINE RISK AND MANAGEMENT
ROLE OF EACH OF THE PARTY RELATED TO
INSURANCE; INSURED;INSURER;BROKER
NEED FOR IMPLEMENTING RM
ADVANTAGES OF HAVING RM
CLASSIFICATION OF RISKS
PURE RISKS MANAGEMENT
CORPORATE RISK MANAGER AND HIS ROLE
 CONTD.
PERSONAL ATTITUDES OF INDIVIDUALS
CORPORATE RISK MANAGEMENT - RISK
MANAGEMENT DEPARTMENT
RISK HANDLING METHODS
1. RISK IDENTIFICATION
2. RISK EVALUATION/ QUANTIFICATION
3. RISK AVOIDANCE
4. RISK MINIMISATION
5. RISK TRANSFER
6. RISK FINANCING FOR RISK RETENTION
7. ROLLING REVIEW
CONTD
CONTINGENCY PLANNING
DISASTER CONTROL
MUTUAL AID
INCIDENT / ACCIDENT INVESTIGATION
INTERACTION WITH INSURERS/
ENGINEERS/ SURVEYORS
CAPTIVE INSURANCE COMPANIES
ASSOCIATIONS/ CLUBS/
 RISK- DEFINITION
Risk is defined as the chance of having
a loss due to occurrence of an event
The risk is always associated with the
loss aspects since the word itself has
the association of DANGER OF LOSS
The definition can be “ PROBABAILITY
OF THE OCCURRENCE OF AN EVENT
RESULTING IN LOSS/ GAIN
RISK AND MANAGEMENT
RISK- CHANCE OF AN EVENT HAPPENING
RESULTING IN LOSS/ GAIN
TO APPRECIATE THE NEED FOR LOSS
PREVENTION AND IMPLEMENT MEASURES TO
ACHIEVE THE SAME
THE EFFORTS ARE AIMED TO PREVENT A LOSS
HAPPENING BUT ALSO TO MAKE IT MANAGEABLE
IF IT HAPPENS
THIS ASPECT IS TO BE ACHIEVED IN ALL
ACTIVITES OF THE ORGANISATION BE IN
PRODUCTION, STORAGE, HANDLING,
TRANSPORTATION AND DISTRIBUTION
 EFFECTS OF RISK
Risky situations are to be faced by those who are
deploying their Capital & RESOURCES in any VENTURE
( is it an ADENTURE?)
Adventure means venturing into some area which may
have serious effects on the well being of the resources
All Industries / Business do face such situations every
day in their activities
HENCE RISK MAY BRING IN LOSS IN CASE OF AN
ACCIDENT / UNTOWRD HAPPENING BUT CAN BRING
IN PROFITS IN THINGS GO IN THE WAY THESE ARE
EXPECTED TO HAPPEN
Risk Management- Macro
Provision of adequate infrastructure,
trained personnel and capability to
mitigate huge losses due to disasters
natural & man made will be the main area
for macro analysis by the Government
Natural disasters result in huge
devastation and loss of human lives
Bhopal tragedy had put India in Guinness
book of world records as one of the big
tragedies of the world
Risk Management-Macro
Pollution is now causing the maximum concern & affects
the health of citizens and young population- Solid,
water, air
We need to improve the public hygiene awareness and
the way in which we are soft targets for epidemics due
to pollution
Past earthquakes in Maharastra & Gujarat had shown
how ill prepared we are
Every year the country is ravaged by floods in many
parts and drought in some parts- interconnection of
rivers remains a distant dream- water may become one
of the major sources of trouble in this country
Infrastructure is looked into only after development and
government is then unable to acquire the land required
Risk Management-Macro
Allowing too many Airlines without
runways has only resulted in air
congestion and pollution of air at higher
level
We are contributing to global warming,
unpredictable weather conditions, hole in
the ozone layer which nature has provided
to shield us from ultra-violet radiation
Unscrupulous destruction of forests and
creation of concrete jungles has resulted
in ecological imbalance
RISKS A BUSINESS FACES
ENVIRONMENTAL RISKS-LEGAL,
SOCIAL, ECONOMIC, FINANCIAL RISKS
CHANGES IN BUSINESS, SPECULATIVE
RISKS,TECHNOLOGICAL CHANGES
PURE RISKS
FUNDAMENTAL RISKS
STEPS IN MANAGEMENT
PLAN
ORGANISE
DELEGATE
MOTIVATE
TRAINING
CONTROL
COURSE CORRECTIONS
ACHIEVE THE GOALS
EFFECTS OF PURE RISKS –
ORGANISATION FACES

D.LOSS OF KEY A.LOSS OR

EMPLOYEES DAMAGE TO
BODILY FATAL/NON-FATAL PROPERTY
TO EMPLOYEES

LOSS
EVENT

C.LIABILITY LOSSES B.PECUNIARY LOSSES

(FINANCIAL)
Details A.Loss /dge to property

Fire & explosion

Storm, cyclone, hurricane,
flood/inundation
SRCC
Accidental damages
Breakdown losses
Financial losses
Business Interruption
Loss of profit
Continuing fixed costs
Cost of alternate accomodation
Increased cost of working
Increase in cost of replacement of assets
following loss/damage/destruction
Under insurance/absence of insurance
Liabilities
to general public
to users due to defective products
to employees as employer
as tenants
other legal liabilities
due to their acts-Directors/ Officers
Human resources
Fatal or non-fatal injuries
Loss of key/ trained employees
Loss of earnings due to disablement
Hospitalization and medical expenses
Travel ( inland and overseas)
EFFECTS OF SPECULATIVE
RISKS –ORGANISATION FACES

LOSS OF KEY LOSS OF REVENUE

EXPERIENCED DUE TO LOSS
EMPLOYEES OF MARKET SHARE

SPECULATIVE
RISKS

INCREASED FIXED LOSS OF CUSTOMERS

CHARGES/ LOSSES /SUPPLIERS
Risk Management- Definition
Risk Management is defined as the
systematic way of ensuring protection
of business resources and income
against losses so that the aim , goals
and vision of the company can be
reached.
Thus Risk Management creates stability
and contributes to growth and assures
profitability of the Organisation.
AIM OF RISK MANAGEMENT
TO SUCCESSFULLY ACHIEVE THE
OBJECTIVES OF THE ORGANISATION
ACHIEVE THE COMPANY’S MISSION
ACHIEVE THE SHORT TERM AND LONG
TERM GOALS OF THE ORGANISATION
SATISFACTION OF CUSTOMERS,
MANAGEMENT, EMPLOYEES AND
SHARE HOLDERS & GOVERNMENT
 RISK MANAGEMENT
This is of very recent origin ( less than three
decades old)
This is now being considered as a managerial
topic and as aspect in which the top
management should get involved to reduce
any adverse effects on the balance sheets.
RM can be described as the scientific way of
dealing with or handling the risks.
This is done by Risk Analysis, Risk Control,
Risk Transfer, Risk financing and rolling
review
 ICEBERG OF LOSSES
INSURED LOSSES

UNINSURED LOSSES
UNINSURED LOSSES
LOSS OF GOODWILL
LOSS OF MARKET
LOSS OF CUSTOMERS
LOSS OF SHAREHOLDER VALUE
LOSS OF KEY EMPLOYEES
LOSS OF COSTS INCURRED
THE R M IMPERATIVES
“RISK NEEDS” PERCEPTION
RISK ANALYSIS
RISK ASSESSMENT
RISK MINIMISATION/CONTROL
RISK IMPROVEMENT
SHARE INDUSTRY EXPERIENCE
SHARE INFO ON CHANGES - BOTH
CURRENT & PROSPECTIVE
THE R M “BEST PRACTICES” ?

INVOLVE ALL PLAYERS

EDUCATE, CONTINUOUSLY
INVOLVE “CORE” & “NON-CORE”
INVOLVE FINANCIAL PERSONNEL
INVOLVE SAFETY PERSONNEL
INVOLVE FIRE SERVICE PERSONNEL
INVOLVE BUSINESS PARTNERS
INTERACT, CONSTANTLY - PROACTIVELY
THE RISK MANAGER’S DO’S

ALWAYS ADDRESS CHANGE & CONTENT

MANAGEMENT – AT ALL TOUCH POINTS
– REGULATORY/INSURER/INSURED/
INTERMEDIARY/SURVEYOR
ADDRESS DELAY POST-HASTE
COMMUNICATE CONTINUOUSLY
GET REAL – NO
EXAGGERATIONS/BLUFFING
GET YOURSELF PROFESSSIONALLY
RESPECTED – CONTINUOUS EDUCTION
THE RISK SPECTRUM
ENIRONMENTAL RISKS
STATUTORY RISKS
LEGAL RISKS
TECHNOLOGICAL RISKS
HUMAN ELEMENT
PRODUCTION/ FINANCIAL/MARKETING
MARKET RISKS
TIME FACTOR
THE RISK SPECTRUM

PROJECT RISKS
STORAGE RISKS
ERECTION & MAINTENANCE RISKS
OPERATIONAL RISKS
STORAGE RISKS
TRANSPORTATION RISKS
OUTSOURCING RISKS
ALVIN TOFFLER

“ ILLITERATES ARE NO
LONGER THOSE WHO CANNOT
READ AND WRITE, BUT THOSE
WHO CANNOT LEARN,
UNLEARN & RELEARN ”
QUICKLY & CONSTANTLY
PURPOSE OF RISK MANAGEMENT

RISK MANAGEMENT AIMS TO PROVIDE AN

INCIDENT FREE AND ACCIDENT FREE
ENVIRONMENT FOR ACHIEVEING THE
OBJECTIVES OF THE ORGANISATION
RISK MEANS UNCERTAININTY OF THE
OCCURRENECE OF AN EVENT WHICH MAY
RESULT IN LOSS/GAIN
IMPORTANT CHARACTERISTICS ARE THE
UNCERTAINITY/ SEVERITY OF SUCH LOSSES
ADVANTAGES OF RM
To achieve the objectives of the Organisation
To ensure that the goals short term and long term
are achieved without any disruption or delay
To optimise the utilisation of the resources
To have knowledgeable insurance arrangements
and have considered decisions on insurances not
to be availed
 ENVIRONMENTAL RISKS

Risks which are to be faced which are external

but influence the working and health of the
Organisation
These are called Environmental Risks
Legal
Social- Riots/Strikes/Bandh
Political-Change in the political systems of
Governance and Management-tensions with
neighbours
Economical- Soaring Oil prices
MANAGEMENT
ALL ABOUT ASPECTS OF SUCCESSFUL
MANAGEMENT OF RISKS BOTH PURE AND
SPECULATIVE RISKS
PROPER PLANNING
ORGANISE THE AVAILABLE RESOURCES
COORDINATION
DELEGATION
MOTIVATION
DECISION MAKING
ROLLING REVIEW
CLASSIFICATION OF RISKS

SPECULATIVE RISKS & PURE RISKS

DYNAMIC RISKS & STATIC RISKS

FUNDAMENTAL RISKS

PARTICULAR RISKS
CLASSIFICATION OF
RISKS
SPECULATIVE PURE RISKS
RISKS
Operation of this These do not change
leads to profit /loss with the risk
Leads to speculation The operation of these
like investment of perils does bring in
capital in a new loss/damage to
venture property/assets/ liability
Operation is desired Not desired
 Classification of Risks
Dynamic risks Static risks
Changes with the change Like pure risks these
in fashion, buying risks remain static and
behaviour, trends, do not change due to
technology etc other reasons like that of
It denotes dynamic dynamic risks
nature of the customer The operation of these
behaviour and the risks always bring about
products they like to losses
own or use Operation is not desired
If an organization is not May result in partial or
prepared then it may go total cessation of
out of existence activities
CLASSIFICATION OF RISKS
PARTICULAR RISKS FUNDAMENTAL
Risks which relate to RISKS
one or few firms, Relates to the society at
large
factories or
Losses are suffered by
organisations only
large section of the
Losses are suffered society/nation(s)
by one or few more Losses may be due to
members of the natural catastrophes,
society riots, epidemics etc
 Development of Risk
Management
The Industries / Business houses want to have incident
free/ accident free working to achieve their objectives
For this purpose it is necessary to understand the loss
producing events , the nature of losses/ extent of
losses to come up with the loss control
measures.EXPOSURE ANALYSIS
Risk Management aims to help the owners to have
control on loss incidents and to reduce the extent of
losses by proper study of the exposures and actions to
be taken to control the same
This as a science had developed in about thirty years
period
Risk Management process
The steps in Risk Management process are:
1. Risk analysis- Risk identification &
Risk evaluation
(Risk measurement)
(Risk quantification)
2. Risk control - Risk avoidance
(Risk minimization)
3. Risk transfer- Insurance with Professional
Insurance companies
4.Risk financing- Risk retention
5. Rolling review
How the loss is caused?

Loss is caused by the operation of perils

which refers to the causes for the losses
Loss or damage is caused by the operation of
perils such as fire, explosion, flood, storm etc
The loss potential ( extent of loss) depends
on conditions which are favourable for the
incident to assume large proportions. This is
known as hazard or potential of the loss.
More the potential severe will be the extent
of loss
PERIL ( CAUSE)----------------LOSS(EFFECT)
HAZARD
Causes of losses
Perils- such as fire, explosion etc
Human factors- such as negligence, carelessness,
inadequate training, inadequate supervision, lack
of proper systems and controls
Inadequate maintenance ( predictive/ routine/
annual maintenance)
Failure of Plant/ machinery due to breakdowns
(failure of safety devices)
Natural perils such as flood, cyclone, earthquake,
landslide, rockslide & subsidence
Extraneous: Accidents involving Gas or chemical
in nearby units
 HAZARD
Hazard is defined as conditions existing which
are favourable for the loss becoming severe
CLASSIFICATIONS OF HAZARD
Physical hazard-Originating hazards
Contributory hazards
Tertiary hazards
Moral hazards -relating to the moral behavoiur
of the clients
Morale hazard -Relating to the morale & working
conditions of the employees & employer-
employee relationships
 RISK ANALYSIS

Needs to be done by a person who is

conversant in the identification and
measurement
The severity of the risk depends on two
factors –extent and frequency ( probability)-
ranges from 0-1
There are various methods to analyze the
extent of loss
The frequency is to be analyzed based on the
analysis of data ( loss events and the
frequency ) using statistical methods
RISK ANALYSIS- METHOD

LIST ALL POSSIBLE RISKS

INVESTIGATE BY
STUDY
INQUIRY
DOCUMENT REVIEW
PHYSICAL INSPECTION
ANALYSE EACH RISK
 RISK PERCEPTION
RISK
Loss in utility
RISK APPETITE

Risk
Seeker

Neutral
toward
risk

Risk
averter

Loss in Rupees
 RISK CONTROL

PRESERVE CONTINUITY OF OPERATION

UNDER SAFE OPERATING CONDITIONS
PROPER PLANNING –LAYOUT OF
BUILDINGS/PLANT/MACHINERY
BUILD IN SAFETY TO AVOID LOSSES TO
PERILS SUCH AS FIRE, EXPLOSION NATURAL
OR HUMAN NEGLIGENCE CAUSING SERIOUS
LOSSES
 RISK ANALYSIS

Property losses- losses which can happen to the

Assets
Pecuniary losses- Financial Loss which can be
caused by business interruption due to the loss to
the assets, financial loss due to infidel acts of
employees, storekeepers and other employees
Liability losses- Loss to the Third Party property or
third party personnel ( also known as TPPD and
TPBI) due to activities of the Organisation
Personal injuries- accidents resulting in fatal or
non-fatal injuries to the employees
METHODS OF RISK ANALYSIS

HAZOP STUDY- HAZARD OPERABILITY

EVENT ANALYSIS
THREAT ANALYSIS
INPUT- OUTPUT ANALYSIS
FAULT TREE ANALYSIS
 RISK EVALUATION

Methods available are

Study of Organisational charts/ balance
sheets, accounting records
Process flow diagrams, P & I diagrams
Input- output analysis- contribution from
various sections, inter-dependencies
Study of completed checklists
Threat analysis- Denial of access, Loss of
services
EVALUATION METHODS
INPUT – OUTPUT ANALYSIS TO TRACE
THE FLOW OF GOODS AND SERVICES
TO IDENTIFY THE CONTRIBUTION OF
PARTS OF ORGANISATION TO THE
TOTAL EARNINGS AND TO ANALYSE
EXPOSURES
EVALUATION OF RISKS-THREAT
ANALYSE THE THREATS TO BUSINESS
DENIAL OF ACCESS- CHEMICAL
LEAKAGE, COLLAPSE OF NEARBY
BUILDINGS, STRIKE, PICKETING,
DAMAGE TO WATER/SEWER MAINS,
GOVT RESTRICTIONS
LOSS OF SERVICES –WATER,
POWER,RAINS, FLOODS, CYCLONES
EVALUATION OF RISK-THREAT
EVENT ANALYSIS
INVESTIGATE CAUSES AND EFFECTS
FAILURE OF BOILER EXPLOSION
FAILURE OF A CRITICAL ITEM
EXPLOSION IN PRESSURE VESSEL
HAZARD LOGIC TREES- VARIOUS
HAZARDS WHICH MAY RESULT IN
OPERATION OF A PERIL LEADING TO
LOSS
HAZOP ANALYSIS
MEANT FOR CHEMICAL PLANTS
HAZARD OPERABILITY STUDIES
EFFECT OF MORE OF, LESS OF, PART
OF , NONE
FAULT TREE ANALYSIS
EXAMINE RELATIONSHIP OF VARIOUS
TYPES OF FAILURES
THE TREE IS CONSTRUCTED BY ASKING
WHAT MUST OCCUR BEFORE A LOSS
PRODUCING EVENT HAPPENS
EXPLOSION REQUIRES- FORMATION OF
EXPLSOIVE MIXTURE- CLOUD
FORMATION- SOURCE OF IGNITION
PROBABILITY ANALYSIS WILL HELP IN
APPRECIATON OF THE RISK INVOLVED
SAFETY AUDITS
THOROUGH KNOWLEDGE
TEAM OF EXPERIENCED OFFICIALS
WALK IN AUDIT
EXAMINATION OF THE STANDARDS
HOUSEKEEPING SECURITY, TRAINING
AND PREPAREDNESS OF
EMPLOYEES,MEANS OF ESCAPE
RISK EVALUATION-CONTD.

Event analysis- Effects of a loss

producing event
Hazard Logic Tree- Risk and effects
Hazard Operability studies- more of ,
less of, none of, part of,
Fault tree analysis- Explosion,
Safety audits- Physical inspection
 RISK HANDLING METHODS

ADOPTION OF LOSS CONTROL MEASURES

Loss control measures involve the nature of
the devices utilized and the human factor
For any system to be effective the employees
concerned need to be properly trained and
knowledgeable.
The Management need to ensure that the
systems employed are in good working order
the employees are regularly trained.
 RISK AVOIDANCE

This is also known as Risk Elimination

Identify the risk and if possible avoid the
risk by eliminating the source
It is like avoiding a location due to seismic
activity in the area
Avoiding a low lying location which is
susceptible for flooding
RISK MINIMIZATION-RISK CONTROL
If risk can not be eliminated then it is necessary to
minimize the extent of loss/damage/liability by
employing loss control measures
Utilizing fire fighting measures like detectors/
hydrants/sprinklers
Using CCTVs/ watch & ward to ensure adequate
security
Employees need to be well trained for fire fighting
operations
Employing proper checking /screening systems/
regular and its inventory controls
Checking the antecedents of persons employed
 RISK RETENTION

To keep the costs under control, after

analyzing the risks the Management, may
decide to retain some of such losses to its
account.
Once a decision is taken , then necessary
provision needs to be made to avoid such a
loss ,if happens, eating into the operating
budget
Special contingency funds are therefore to be
created for this purpose
 EFFECT OF LOSSES

Huge losses will upset the functioning of the

Power Station
Besides the interruption losses, the loss of
goodwill, investigation by Government and
other agencies will be tedious
The direct impact of any incident is in the
monetary loss and in restarting of the
affected unit.
Employees morale gets affected
RISK MANAGEMENT POLICY

The RMP is to be adopted by the Management

The Policy details should be communicated to
the employees
The need to have the RMPolicy should be felt by
the employees
The Corporate Risk manager is responsible for
the implementation of the RM Plan
The RM Dept will produce its own report and
follow it up with an annual report on its
performance
 CORPORATE RISK MANAGER
The Corporate risk manager is essentially the
coordinator . He has to analyze the various activities
and find out the risks involved and analyze which are
to be controlled, avoided and which are to be insured.
Once the plans are finalized and adopted by the
Management , the Insurance dept ensures that the
insurance policies are obtained and maintained during
the annual period
Periodical reviews need to be done to ensure that the
risks are analyzed and necessary modifications are
done to suit the organization's policies.
CONTINEGENCY PLANNING
IDENTIFICATION OF ALTERNATE SOURCES
IDENTIFICATION OF KEY AREAS
PLANNING FOR COMEBACK IN SHORTEST
POSSIBLE TIME
BACKUPS OR DUPLICATE RECORDS OF VITAL
INFORMATION TO BE MAINTAINED IN
ALTERNATE SAFE LOCATIONS
INCIDENT /ACCIDENT
INVESTIGATION
ALL INCIDENTS WHETHER THESE RESULT IN
AN ACCIDENT OR NOT NEED TO BE
REPORTED AND ANALYSED TO AVOID A
FURUTE LOSS OR RECURRENCE.
ALL LOSSES NEED TO BE STUDIED
WHETHER SMALL OR MEDIUM OR BIG WITH
A VIEW TO LEARN THE CAUSES AND TO
ENSURE THAT PREVE
 CONTRIBUTIONS OF RM TO
THE BUSINESS
Achievement of objectives/ goals
Reduced anxiety due to losses are of reasonable
magnitude and does not cause serious loss situations
Goodwill is maintained by meeting the obligations
The business is able to survive competition
Successful and continued operations
Resultant growth and sustained earnings
Better care for employees and society at large
Reduction of expenses
Better relationships between customers, suppliers,
employees
THANK YOU