Essay on Honeywell, Inc. and Integrated Risk Management

997 Words Mar 25th, 2013 4 Pages
Would Honeywell have the same degree of protection under the new program as it had had under its existing program?

Honeywell claims that it will have the same degree of protection under the new program that it held in the current program. By combining each individual risk and its respective insurance plan into one master insurance policy, Honeywell believes that it will offer the firm the same degree of coverage and policy protection that it has under the current strategy at a reduced (15-20% less) cost. When comparing the two programs aggregate retentions (deductibles), the case states: “This aggregate retention was set to approximately equal the sum of the separate retentions under the current program. The $30 million retention also
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Honeywell is a very large firm that pays substantial amounts to insurers, and that gives them a significant degree of bargaining power. Competition between bidding insurers can help to drive the insurance costs down significantly – effectively giving insurers no choice but to offer a discount.
Was Honeywell the right firm to innovate in the area of integrated risk management given its lack of acceptance in the broader business community at that time? Given the facts of the case, Honeywell definitely appears to be the right firm to innovate and try out the concept of integrated risk management. Honeywell’s international presence exposes it to many different types of international risk. Even before the proposed idea of the integrated risk insurance program, Honeywell’s risk management units were already designed to be conducive to this new plan. Lastly, Honeywell was the right firm to attempt this new idea because it was exposed to more volatility risk than the market (beta). Honeywell operates in 95 different countries. With so much business reliant on success abroad, Honeywell is exposed to both foreign currency translation as well as foreign transaction risk. To hedge transaction risk in the past, Honeywell would take long positions in the currency of the country it had made purchases in. To mitigate for

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