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I11 Introduction to Risk Management > Chapter 6 - Risk Treatment > Flashcards

Chapter 6 - Risk Treatment Flashcards

1
Q

What are the options for risk treatment?

A
  • Eliminate
  • Control
  • Transfer
  • Retain
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2
Q

Describe risk elimination

A

Involves closing the part of the business or activity that causes the risk

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3
Q

Describe risk control

A

Range of risk controls that seek to remove or improve the risk. i.e. monitoring complaint numbers to understand the effectiveness of training

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4
Q

Describe risk transfer

A

Passing the risk to another party by means of a contract conditions

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5
Q

Describe risk retention

A

Where a risk of low maturity and cost of controls is uneconomical, firm may decide to tolerate the risk

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6
Q

What are the downsides of risk elimination?

A
  • Economic costs (ceasing profitable but risky operations)

- Unintended consequences (may increase the probability of another risk with the elimination of the current risk

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7
Q

When is the best time to achieve risk avoidance?

A

At the design/planning stage

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8
Q

What are the four control risk categories?

A
  • Preventive
  • Corrective
  • Detective
  • Directive
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9
Q

Examples of corrective tools

A
  • Contract terms
  • Business continuity planning
  • Diversification of business risk
  • Diversification of financial investment risk
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10
Q

Examples of directive controls

A
  • Rules and training
  • Procedural Manuals
  • Job descriptions
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11
Q

What is a potential weakness of directive controls?

A

Human factor

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12
Q

Examples of detective controls

A
  • Accident Investigations
  • Fraud detection
  • Audits and Inspections
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13
Q

How do we measure cost effectiveness of controls

A

Difference between inherent risk and residual risk. Difference must be at least greater than the cost of implementing the measure

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14
Q

What are the advantages of insurance as a vehicle for risk transfer?

A
  • Economic vehicle for sharing exposures with a large number of other organisations
  • Insurers have wealth of experience in risk and risk funding mechanisms
  • insurers can provide additional services
  • Fast access to insurance funds means organisations have more cash for long term investments
  • Co-insurance
  • Premiums may be tax deductible
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15
Q

What are the disadvantages of insurance as a vehicle for risk transfer?

A
  • Insurers look at cause of loss whilst organisations see severity of loss
  • Insurers want to contain risk acceptance and pricing to a short period
  • Policies offered may not include risks that are the greatest concern to the organisation
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16
Q

Define CAT bonds?

A

Catastrophe bonds - provide returns based on insurance type events, life is 3-5 years. A trigger mechanism would be determined in the bond

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17
Q

Why do people invest in securitisation and securitised risk products

A
  • Spread risk of their portfolios

- High Cat. losses have exposed the inability of the insurance market to respond adequately.

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18
Q

Examples of transfers by contract

A
  • Leases and hiring agreements
  • Surety agreements
  • Guarantees
  • Waivers
  • Indemnity and ‘hold harmless’ agreements
  • Disclaimers
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19
Q

What is a surety agreement

A

A contract between 3 parties where the surety takes the risk that the principal to a contract does not perform or complete, but can claim back losses from the principal

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20
Q

What is a guarantee?

A

A contract between 2 parties where the guarantor takes the risk the principal to a contract does not complete or perform

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21
Q

What is a waiver?

A

Where the contracting party gives up, for a financial consideration, its rights to sue in the event of a breach on contract.

22
Q

What is an indemnity and ‘hold harmless’ agreement?

A

Agreements between two parties designed to release one from legal claims

23
Q

How to finance risk retention

A
  • Non replacement
  • Current expense
  • Contingency reserve
  • Internal risk fund
  • Captive Insurance company
  • Borrowing
24
Q

Non Replacement

A

Organisation absorbs the loss out of income and does not replace the asset

25
Q

Current Expense

A

Losses as a result of certain risk are treated as current operating costs

26
Q

Methods of partial retention

A
  • Indemnity limits
  • Excesses and Deductibles
  • First loss cover
27
Q

First loss cover is when…

A

the insurance company pays for losses up to an agreed limit and organisation pays above the limit (i.e. theft)

28
Q

What is business continuity?

A

Advance planning for events which cannot be avoided or insured (expected and unexpected events)

29
Q

What are core functions in BCM?

A
  • Crisis management planning
  • Continuity planning
  • Recovery
30
Q

What are facilitating functions in BCM?

A
  • Leadership and support
  • Evaluation and improvement
  • Exercises and tests
  • Survival priorities
31
Q

The ability of governments, businesses and society to continue as ‘business as usual’ is called

A

Resilience

32
Q

Benefits of BCM?

A
  • Inspire trust to continue operations through a disruption
  • Protect your reputation
  • Respond to legislative requirements
  • Reduce cost of disruption
  • Create competitive advantage
  • Contribute to resilience
33
Q

Drawbacks of BCM?

A

Costly and may never be implemented

34
Q

What barriers are in healthcare regarding controlling risks?

A
  • Physical Barrier (most effective) - Actual physical hindrance
  • Natural Barrier - Barriers of distance, time or placement
    i. e. injections on different days, different colour packaging)
  • Human barriers
    i. e. checking bath temperature, double checking with a colleague, checking details of patient.
35
Q

What are Preventive Controls

A

Stops risk or unwanted outcome (i.e. separation of duties, physical, natural and human barriers)

36
Q

What are Directive Controls

A

Behaving in a specific way

37
Q

What are Detective Controls

A

Identifying unwanted occurrence after it is happened (i.e. fraud detection and audits)

38
Q

What are Corrective Controls

A

Recovering from undesirable events that have taken place i.e. (contract terms, continuity planning, insurance, diversification)

39
Q

What finance retention method is unavoidable and regular?

A

Current Expense

40
Q

What control ensures a particular outcome is achieved?

A

Directive Control

41
Q

What control is used AFTER loss has occurred?

A

Corrective

42
Q

What control is used to identify when an incident has happened?

A

Detective

43
Q

What is a permit to work system?

A

Formal recorded process used to control work which is identified as potentially hazardous.
Means of communication between site/plant supervisors and those who carry out hazardous work

44
Q

What is the internal risk fund?

A

Separate fund designed to ensure the availability of liquid funds specially to pay losses

45
Q

What is a Contingency fund?

A

Part of surplus of trading year held in a reserve which is equal to the expected cost of losses during the year.

46
Q

Indemnity limits?

A

Potential limit to loss is open ended. Insurance companies may impose a limit on the amount of payment they will make.

47
Q

What is Crisis Management?

A

Identifying what needs to be done and by whom to diffuse a problem or reduce a threat

48
Q

What is Continuity Planning?

A

Ensure organisation is well prepared to handle a major disruption. Aim is to return to operations as quick as possible

49
Q

What is Recovery Planning?

A

Documenting the process/procedures yo recover and protect IT infrastructure

50
Q

Excluding a peril from a policy is what type of control?

A

Preventative

51
Q

What does a business continuity plan show?

A

Resilience

52
Q

What method of treating risk includes using measures that help an organisation to recover from loss/damage once it has taken place

A

Risk Control

I11 Introduction to Risk Management (7 decks)

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