Operations Risk Management - Study 1: Introduction To Risk Management And Commercial Lines Insurance

Front 1

Loss Exposure

Back 1

situation/physical circumstance that creates vulnerability to loss, damage or injury AND will lead to a financial loss

Front 2

Uses of Risk Management (3)

Back 2

- determine the exposures the clients need to manage
- provide plan of action to manage those risks
- recommend insurance coverage for those risks best served by insurance cover

Front 3

Commercial Insurance

Back 3

- category of insurance for professionals, businesses, govs, orgs
- may be offered in Commercial Package Policies
- often requires several policies to fully cover/insure the risks

Front 4

Commercial Package Policies

Back 4

include a variety of property and liability coverages together in a program

Front 5

Per-Loss Objectives

Back 5

to be accomplished before a loss occurs

- social responsibility
- comfort level: tolerance for uncertainty
- operating economically
- externally imposed obligations

Front 6

Externally Imposed Obligations

Back 6

- legal or based on agreements made with customers
- following these objectives helps maintain relationships and keep you out of trouble

Front 7

Operating Economically

Back 7

Cost of Risk: costs associated with managing pure risk.

Includes:
- cost of premiums
- recovery from uninsured losses

Front 8

Post-Loss Objectives

Back 8

- social responsibility
- operational continuity
- sustaining growth
- survival
- maintained stable earnings

Front 9

Cost to operate continuously

Back 9

- renting new space -> advertising new address -> possibly higher cost
- lost income if goods cannot be produced for customers to buy

especially vital for indispensable businesses such as internet or telephone providers

often necessary for the survival of the business

Front 10

Maintained Stable Earnings

Back 10

Done by:
- cutting expenses by an amount proportional to the loss in sales
- laying off workforce
- reducing/eliminating purchase of raw materials
- reducing heating/cooling costs due to plant shutdown

Front 11

reciprocal agreements with other businesses are done in order to maintain operational continuity in the event of a loss

Making agreements is easier with ______ products.

More difficult with ______ products with _______ techniques behind their production

Back 11

generic, unique

Front 12

Elements of A Loss Exposure

List the 3 distinct elements

Back 12

1. item subject to loss
2. potential cause of the loss (peril)
3. financial consequences of the occurrence

Front 13

Items subject to loss are categorized into

Back 13

- physical assets
--> loss of use of these assets
- legal liabilities
- personal health and earning capacity (human assets)
--> program to train highly skilled people must be in place

Front 14

________ provides financing for training expenses when a high level employee leaves

Back 14

"key person" insurance

Front 15

Perils are grouped by origin into 3 general categories

Back 15

1. human - vandalism, arson, theft
2. natural - forces of weather and earth
3. economic - changes in consumer taste, currency fluctuations, depreciation, expropriation, stock market declines, technology advances

Front 16

________ perils are generally not insured

Back 16

economic

Front 17

Financial consequences are affected by

Back 17

1. reduced value of asset
2. decreased income from derived asset
3. increased expenses to keep asset operating

Front 18

Risk Manager's Role

Back 18

- develop/co-ordinate risk management functions
- serve as advisor
- id loss exposures
- prevent loss
- informing/being a resource to upper management
- reducing loss
- loss financing