Risk Identiication And Classification Flashcards
Process of identification and evaluation or risks
High-level preliminary analysis
Brainstorming with experts (internal external)
Desktop analysis for understanding
Past loss event database can be reviewed
Some risks evaluated qualitatively
Other quantitatively with tails of distribution or extreme value
Against each risk, mitigation strategy can be noted
Should be periodically undertaken
Techniques in risk identification
Risk classification
Risk checklist
High-level preliminary analysis
Brainstorming with expertise
Desktop analysis
Industry practices
Use of consultants
define operational risk
refers to the risk of loss
resulting from inadequate/failed internal processes/systems
people
or from external events
List six types of risk and breif explanation
Business risk - risks that are specific to the business written
Market risk - risks related to changes in investment values or features correlated with investment markets
Credit risk - risk of failure for third parties to meet their obligations
Liquidity risk - risk that company does not have the financial resources to enable it to meet its obligations
Operational risk - risk of loss from inadequate/failed internal control processes/systems/person
External risk - risks arising from external events
Risks for developing new products
Have to invest in administration system
if not enough new businesses, might not cover the costs
experience problems in the training of staff
cost of preparing system is higher than expected
insufficient new busienss be generated when developing the product
unrealistic plans
unfamilarity of the existing sales
Define what is a risk register and what it contains
A document that contains all the material risks a business/individual is exposed to
as well as some categorisation of the various risks
against reach risk would be a quantification of the impact
and the probability of it occurring
product of impact and probability gives some measure of the relevant importance of each risk
extended to indicate how each risk can be avoided/retained/diversified/mitigated (internally or transfer to external party)
for retained risk, the portfolio will contain control measures/reassessment of the impact and probability after contro measures/risk owner/board oversight/identification of risk concentrations
define anti-selection
people are more willing to take out a contract when they believe their risk is higher than the insurance company has allowed for in its premiums
why do group contracts have lower anti-selection risks
often compulsory membership
all members receive same benefits
should be less opportunity for good risks to decide not to join
group membership expected to be a mixture of good and bad risks
expect people in work to have a better health condition
give four types of business risk
underwriting risk
poor underwriting standards
insurance risk
poor claims experience
risk that claim frequency/severity is higher than expected
risk on reinsurance
financing risk
poor returns
exposure risk
lower sales volumes
exposure to a particular risk being greater than expected
three types of credit risk
counterparty risk
asset default
debtors failing to pay
five key sources of operational risk
inadequate/failed internal processes, people or sytems
dominance of a single individual in the running of the company
reliance on third parties to carry out tasks for the company
failure of plans to recover from an external event
conduct risk
