SECTION 5: ANALYTICAL RISK IDENTIFICATION METHODS Flashcards
8 Analytical Methodologies
8 Analytical Methodologies
C IN FLIPS
Compliance Review
Insurance Policy Review Method
Non-Insurance Contract Review Method
Financial Statement Analysis
Loss Data Analysis
Insurance Checklist Method
Procedures and Policy Review
Specialty Resource Method
Specialty Resource Method: Define // 2 General Uses // 3 Strengths // 2 Weaknesses
Define: Uses internal and external personnel possessing expertise in a special field of knowledge to ID exposures / Perils / Hazards
General Uses:
- Unusual situations
- Complex situations
Strengths:
- Experienced people
- Time Efficient
- Unbiased viewpoint
Weaknesses:
- Experts can be hard to find
- External specialists can be expensive
Non-Insurance Contract Review Method: Definition // 2 General Uses (Who / Which Log classes) // 3 Strengths // 2 Weaknesses
Definition: Reviews contracts other than insurance policies (leases, purchase orders, sales contracts, bills of lading, warranties, advertising materials, mergers and acquisitions). Helps determine an orgs obligations to others and vice versa.
General Uses:
- All organizations
- Logical classes applicable: HR, Liability, some property and net income
3 Strengths:
- Gaps in coverage ID’d
- Failures ID’d for contract requirements
- External risk financing can be found
2 Weaknesses:
I Contracts already active usually
- Control decreases with 2nd party involvement
Insurance Policy Review Method: Definition // Gen Uses (Classes? /How conducted?) // 2 Strengths // 4 Weaknesses
Review insurance contract or related docs to determine exposures and perils that are and are not covered
2 General Uses:
- All 4 logical classes
- Conducted internally or externally
Strengths:
- What’s covered is shown
- Definitions proven in the court of law
Weaknesses:
- Unknown Exposures not ID’d
- Market Dependent
- non-standardized policies
- Some wording untested
Insurance Checklist Method: Definition // General Use // 2 Strengths // 2 Weaknesses
Definition: Addresses feasibility of using contractual transfers as a risk financing mechanism
General Use:
- Orgs with insurance requirements
Strengths:
- Definitive
- Exposure evaluation
Weaknesses:
- Uncovered unconventional exposures usually not ID’d
- Markets can out-date checklists
Procedures and Policies Review Method: Definition // 2 General Use (Who? / What Classes) // 2 Strengths // 2 Weaknesses
Definition: Uses internal, external and legal reviews to evaluate the orgs procedures and policies found in bylaws, board minutes, mission statements, org charts, employee manuals, codes of ethics, procedures manuals, risk management policy manuals.
General Uses:
- All orgs
- for Liability and HR
Strengths:
- Procedures can impact multiple departments
- ID self-created exposures
Weaknesses:
- Mostly for Liability and HR
- Politically susceptible.
Compliance Review Method: Definition // 2 General Uses // 2 Strengths // 2 Weaknesses
Definition:
- Determines compliance with regulations and laws
- Areas of compliance can be statutory (local, state, federal), or professional (voluntary, involuntary, industry or gov insurance programs)
General Uses:
- Property / HR / Liability
- Legality determined
Strengths:
- Free
- External opinion
Weaknesses:
- Insurer could cancel if non-compliant
- No control over review process
Financial Statement Analysis Method: Definition // General Use // 3 Strengths // 4 Weaknesses
Definition: Used to ID values that ares ubject to loss, the event that could cause the loss,and the financial impact after the loss
General Uses: All orgs for net income
Strengths:
- Predicting financial loss
- Demonstrating impact of a loss
- Crisis plan development
Weaknesses:
- Biz risks not considered
- Record manipulation
- Historical data only
- Bad for ID’ing perils and hazards
Loss Data Analysis Method: Definition // 2 General Use // 2 Strengths // 4 Weaknesses
Definition: Can be performed on insurance company loss runs, internal loss runs, or RMIS (RM info system), accident or incident reports.
- In this method, loss data or loss history will be collected, organized and analyzed.
General Use: All orgs , All logical classes
Strengths:
- Future loss mitigated
- Benchmarking
Weaknesses:
- Historical data only
- Data Credibility
- Losses needed
- Losses not always repetitive
4 Criteria for Credible Loss Data
CCIR (Sincere)
- Completeness (5 Years and 30 data points
- Consistency
- Integrity
- Relevance
