chap 9 other services

Question 1

risk assessment facilities - in house - surveys - acturial expertise- geographical info systems to measure perils, human resources, consultancy, expert solutions for risk transfer

risk management process
the identification and evaluation of risk, its control or elimination and financing or transfer to another party

Answer 1

risk management- post loss surveys, security/fraud, loss analysis and projection, employee safety, product liab hazard analysis, crisis management, captives, vehicles

risk management process

• risk identification- physical survey, senior management of the business views on risk
• risk evaluation- evaluation of frequency and severity- worse case scenarios - business response to diasters
• risk control and elimination (avoid, reduce, prevent, minimisation, transfer)

Question 2

if a risk cannot be eliminated;

Answer 2

1, reduce the likelihood of a loss occuring lll risk prevention
2, reduce the severity and frequency of a loss lll risk reduction
3. reduce the amount a loss will cost lll risk minimisation

Question 3

principles of risk financing and risk transfer

Answer 3

1. identify all the risk exposures
2. evaluated their impact on the business
3. controlled and eliminated them wherever possible
4. put in effective risk prevention menasures
   client left with 2 options
5. retain the risk
   6 transfer to someone else eg insurer

Question 4

risk retention
passive risk retention
active risk retention

funding of risk retention

• single largest amount the business can afford to retain
• agg of losses the business can afford to retain over time ignoring low level frequent losses- business will need to consider the value of losses it already retains under excesses/deductibles- nature of risks being retained- projections including probability analysis

Answer 4

passive risk retention *
situations where org unaware that risk exists or where existence of a risk is recognised but there is no action plan to do anything about it

active risk retention *
concious decision to bear the cost of any losses resulting from a recognised risk

unfunded risks - actively retained risks eg all below 1000
funded risks- self insurance like arriva

Question 5

captives +’s

Answer 5

+’s
fund retained in structured manner
act as a focus of risk management efforts
deal with claims in an efficient and timely manner
retain premium in house thus retaining money instead of going to another insurer
provide cover for unconventional risks that market wouldnt like,
move in and out of acceptable markets dependent on insurance cycle- captive could write more in hard market conditions]
access cheaper/flexible reinsurance market
benefit from lower tax rates eg isle of man- problems in using captives - tax etc

Question 6

alternative risk transfer (ART)- accessing the capital markets = non traditional forms of reinsurance techniques where risk is transferred to capital markets- eg by cat bonds

Answer 6

cat bonds provide extra capacity- usually 2 - 5 year period based on an event happening or not- payment made on occurrence of event
reinsurers biggest buyers of cat bonds

risks transferred- hurricane, terrorism, eaethquake, windstorm , pandemics
buyers- non insurance entities- governments buying bonds as part of their risk transfer programmes

the structure of a deal - special purpose vehicles (sprv
security rating required from rating agency
- trigger mechanism determined for the cat bond
- larger cat bonds rarely indemnity based, instead payment is triggered when an event happens
- sponsers to investors
- premium paid to sprv- investment income is deposited on collateral account
- if the loss doesnt arise investors receive their principal out of the cat bond

Question 7

special risk consultancy services

Answer 7

property surveys
uw surveys
risk management surveys

business interruption reviews
health and safety in workplace
liability surveys
motor fleet risk management
enviro risk surveys
post loss control services
disaster recovery services