Slides 2

Question 1

Define the ff.
i) Loss exposure
ii) Risk assessment
iii) Risk management
iv) Loss avoidance
v) Loss prevention
vi)Loss reduction
vii) Risk control
viii) Risk financing

Answer 1

1. Loss exposure is any situation where a loss is possible regardless of whether it occurs or not.

ii) Risk assessment refers to defining the likely outcomes of uncertain events, should they happen.

iii) Risk management refers to the systematic process for managing risks and coping with risks.

iv) Loss avoidance is the total avoidance of loss exposures to totally eliminate the possibility of risk.

v) Loss prevention refers to measures taken to reduce the frequency of losses.

vi) Loss reduction refers to measures taken to reduce the size and severity of losses.

vii) Risk control refers to techniques that reduce the severity and frequency of losses.

viii) Risk financing refers to techniques used to provide for the funding of losses or recover from losses.

Question 2

What are the objectives of risk management?
give 4 examples each of
i) Pre-loss objectives
ii) Post loss objectives

Answer 2

To help curb, prevent, avoid or reduce the impact of losses on an organization’s value.

i) Pre-loss objectives include
1. Efficiency of workforce
2. Reduction of fear or anxiety
3. Meeting all legal obligations

ii) Post-loss objectives include
1. Ensure survival of the firm
2. Ensure continued operation
3. Ensure Stability of earnings
4. Continued growth of the firm
5. To continue to behave responsibly and fulfill social responsibilities of the firm.

Question 3

What are some key components of a successful risk management framework?

Answer 3

Risk management process needs to be supported by a framework within the organization.
Some of these key components include;

1. The communication and reporting structure (architecture)
2. The set of guidelines and protocols established
3. The overall risk management strategy.

Question 4

What are some tools for recognizing loss exposures in a firm?

Define risk financing
Define retention
differentiate between active and passive retention.

Answer 4

Some tools for recognizing loss exposure in a firm include
i) Flowcharts
ii) Financial statements
iii) Physical inspection
iv) Historical loss data
v) Risk analysis questionnaires

Risk financing refers to the means of offsetting losses that occur or means by which losses are paid for

Retention refers to the funding of losses using internal funds/ insurance.

Active retention includes the awareness of risk and making plans to retain it whereas
Passive retention includes the failure of identifying and acting upon loss exposures.

Question 5

Give n define 3 risk control options and 3 risk financing options.

Answer 5

Risk control options
i) Avoidance
ii) Loss prevention
iii) Loss reduction

Risk financing options
i) Retention (internal funds)
ii) Insurance
iii) Non-insurance (intentional use of non insurance where losses are counted as direct losses)

Question 6

Explain into detail the risk management process

Answer 6

1. Identify potential losses/loss exposures.
2. Evaluate/ Measure and analyze loss exposures using two concepts
   i) Loss frequency
   ii) Loss severity
   After this, loss exposures are prioritized according to their relative importance.
3. Develop and select methods for managing risks. Using two concepts
   i) Risk control options
   ii) Risk financing options
4. Implementation of the most suitable risk response option and monitor progress.

Question 7

Give 5 examples of loss exposures
Give 3 classifications of risk
Give advantages and disadvantages of risk avoidance

Answer 7

Loss exposures
i) Human resource loss exposure
ii) Property loss exposure
iii) Liability loss exposure
iv) Business income loss exposure
v) Crime loss exposure
vi) Failure to comply with government laws and regulations

3 classifications of risk include
i) Type of risk
ii) Severity of risk/ impact
iii) Frequency of risk / occurrence

Risk avoidance reduces or eliminates the chance of loss to zero
BUT
It may not be feasible or practical as firm may not be able to completely avoid all losses.