Sections 1 & 2 Flashcards
Describe the Key Uses of Risk Analysis
- Validation and Refinement of Loss Data
- Prioritization of Risk Factors
- Financial Assessment
- Insurance Market Analysis
- Classification of Loss Data
- Projection of Losses and Ranges of Losses
- Net Present Value (NPV) Analysis
- Cost-Benefit Decision Making
- Review of Insurance Program Structure (Retentions, Coverages, Limits)
- Establishing a Basis for Allocating Premiums and Loss Costs (Cost Allocation Programs)
- Evaluate Cost Effectiveness of Alternative Methods for Financing Losses
- Benchmarking Opportunities
- Risk Management Performance
What is the Purpose of Qualitative Analysis and its Characteristics
Focuses on loss exposures that can’t be measured precisely like organization’s reputation and brand image. “L” Language. Identifies loss exposures that can’t be easily measured. Attempts to assign relative values. Don’t try to assign hard financial values.
Assessment Methods:
1) Risk Assessment - used to identify and assess those loss exposures that can’t be easily measured by traditional stats or financial methods and to understand their impact on the organizations’ ultimate risks and performance.
2) Financial Assessment - used to identify and assess those broad loss exposures that have a financial impact on the organization but may be difficult to quantify.
3) Loss Data Assessment - used to identify and apply various methods of assessing loss data, and to analyze the impact those losses may have on the organization’s risk management policy and ultimate cost of risk.
What is the Purpose of Quantitative Analysis and its Characteristics
Attempts to accurately measure risks by using acceptable traditional methodologies to calculate relative numerical values. For example, how many losses are expected to occur next year? Is the NPV positive for the proposed loss control project to implemented next year? What is the present value of the proposed deductible losses for next years’ proposed program? “How Much”
Discuss the assessment of broad loss exposures that may have a financial impact on the organization but may be difficult to quantify.
- Management’s appetite for risk
- Innovation, product development and marketing
- Contractual analysis
- Compliance and regulatory analysis
- Human Resources and employee safety issues
- Social responsibility and citizenship analysis
- Internal policies.
Identify the characteristics of quality loss data and describe how those characteristics impact analysis.
- Completeness - Must be enough loss data to make an analysis meaningful.
- Consistency of data - Same types of data should be provided for each claim or accident. (eg. type of loss, cause of loss, time of loss)
- Integrity - Current, reliable, loss reserving should be accurate.
- Relevance - Should yield information on matters about which the organization is concerned. Don’t need to include data from operations that are discontinued for example.
- Useful Organization of Data- better organization might be listing losses according to severity or by location, shift…. etc.
Differentiate between the different data measurement tools and explain how they can be used in risk analysis
Logical Classifications of Exposure - Property, Human Resources, Liability (stuff that happens, net income
1. Employee Injuries (Human Resources) - Accident repeaters, length of employment when injured, cause, type, body part, evaluation of time intervals, location, etc.
Qualitative Measurement Scales:
- Hazard Identification Indexing. Analytical tool that provides non-risk management personnel with information to make basic decisions concerning activities within the scope of their jobs. Assign a score for probability, assign a score for severity, find cell where probability and score intersect.
- Risk mapping. Visual analytical tool where all risks of an organization can be identified and potential impact can be understood. (low to high - severity and frequency.
- Heat Mapping. Visual representation of complex data sets that uses colors to concisely indicate patterns or groupings. Direct data visualization tool that are innate self-explanatory.
- Risk Register. used to track issues, likelihood, potential impact and mitigating measures. Excel spreadsheet, only include loss or no loss (pure risk). Risks are recorded on the risk register and assigned a score for probability and impact.
- Delphi Method - series of surveys / questionnaires used to form a consensus opinion on the anticipated impact of the risk.
Summarize the methods and purpose of root cause analysis and explain how risk managers use it to avoid recurrence of losses.
Identifies the root causes of problems or events and an approach for responding to them.
Goals are to analyze an issue, problem, loss or injury and identify what happened, how it happened, why it happened.
Methods:
1. Ishikawa/Fishbone Diagram - Think of fishbones - start with the head of the fish, a problem statement that defines the issue. Then put “ribs” on the fish. Usually they have 6 ribs or categories 1. People 2. Process/Method 3. Measurement 4. Machinery 5. Environment 6. Materials
2. Job Hazard Analysis - Identify the dangers of specific tasks to reduce the risk of injury to workers. Once the risk manager knows what the hazards are, they can be reduced or possibly eliminated before anyone gets hurt. Can also be sued to investigate accidents and to train workers on how to do their jobs safely.
3. Five Why Analysis - Team based approach to asking questions about the potential causes of a problem or accident. Start with a problem statemen t and list five potential reasons for your problem - evaluate the 5 potential reasons - select the one reason that is most likely potential cause - keep going….
Distinguish between predictive analytics and catastrophe modeling and identify their uses.
Predictive Analytics is more based on behaviors. Use of statistical techniques such as data mining and modeling through analysis of current and historical facts and transactions to make predictions of future unknown events. People data and sensor data are used.
Uses:
Marketing campaigns aimed at customer retention
Cross selling and upselling
Auto insurance - risk of accidents due to credit score, GPS Sensor data
Early notification for emerging trends and risks
Reserve settings
Catastrophe Modeling - actuaries do this. A computerized system that generates a very large set up simulated events to estiate likelihood, magnitude or intensity, location, degree of damage and ultimately insured and uninsured losses arising from a catastrophic event such as a hurricane, earthquake, pandemic.... Uses: Ratemaking Insurance portfolio management and optimization Risk selection & underwriting Cost of reinsurance Loss mitigation strategies Allocation of resources Strategic Planning Financial & capital adequacy
