Crm - Analysis Of Risk

Front 1

What is the definition "Risk" (CRM Definition)?

sect. 1 pg 3

Back 1

Uncertainty that may be either positive or negative arising from a given set of circumstances.

Front 2

What are four (4) broad definitions of "risk" used in "risk management"?

sect. 1 pg 2

Back 2

1. Chance of probability of loss

2. Uncertainty concerning loss

3. Possibility of variation of outcomes from given set of circumstances

4. Difference between expected & actual losses

Front 3

Define "expected losses".

sect. 1 pg 4

Back 3

Projection of the frequency and/or severity of losses BASED ON LOSS HISTORY, probability distributions & statistics; the expected loss projection is a.k.a. "loss pic" or "loss pick"

Front 4

Two types of risk

sect. 1 pg 3

Back 4

1. Pure - Chance of loss or no loss
2. Speculative - Chance of loss or gain; often referred to as a "business risk"

Front 5

Six general classes of risk (J.E.L.P.P.S.)

sect. 1 pg 5

Back 5

Juridical-Judges, jury decision, courts or attitudes

Economic-arising from operations, economy, mkt
Legal-Statutory compliance
Political-Changes in laws/government
Physical-property, people or information

Social-P.R. damage to brand, social media

Front 6

Definition of risk management

sect. 1 pg 6

Back 6

It’s a process of managing exposures that affect an organization's assets & financial statements using five (5) steps: identification, analysis, control, financing and administration.

Front 7

Five (5) steps of the risk management process (I.A.C.F.A.)

sect. 1 pg 7

Back 7

Identify
Analyze
Control
Finance
Administer

Front 8

What is the focus of risk management?

sect. 1 pg 6

Back 8

1. Protect the assets of the organization

2. Protect the financial statements of the organization.

They are not mutually exclusive

Front 9

Explain why risk identification (identifying & examining exposures) is the most important step of the risk management process.

sect. 1 pg 9

Back 9

Exposures, perils and hazards must be first ID’d if they are to be effectively managed.

ID them - Use effective methods of exposure identification
Classify them - Classify exposures

Front 10

What are the four logical classifications of exposures.

sect. 1 pg 9

Back 10

Property (tangible or intangible)
Human Resources (EPLI, WC)
Liability (third party, slip & fall)
Net Income (losses of assets affect this)

Front 11

List the ten (10) methods of exposure identification (didn't review individually in class).

sect. 1 pg 10

Back 11

Checklist and survey
Flowcharts
Insurance policy review
Physical inspection
Compliance review
Procedures and policies
Contract review
Experts
Financial statement analysis
Loss data analysis

Front 12

Qualitative Analysis

sect. 1 pg 11-14, sect. 2 pg 4

Back 12

The "what" analysis. It is emotion, reactionary, subject to opinions.

Front 13

Risk Assessment

sect. 1 pg 10

Back 13

Used to ID & assess those loss exposures that CANNOT be easily measured by traditional statistical or financial methods and to understand their impact on the org's ultimate risks & performance.

Front 14

Financial Assessment

sect. 1 pg 11

Back 14

Used to ID & assess those broad loss exposures that have a FINANCIAL IMPACT on the organization but that may be difficult to quantify

Front 15

The five (5) techniques of risk control

sect. 1 pg 11

Back 15

1. Avoidance

2. Prevention

3. Reduction (pre-loss & post-loss)

4. Segregation/separation/duplication

5. Transfer (contractual, physical or both)

Front 16

Loss Data Assessment

sect. 1 pg 11

Back 16

Used to ID & apply various methods of assessing loss data & to analyze the impact those losses may have on the org's risk mgt. policy & the ultimate total cost of risk.

Front 17

Quantitative Analysis

sect. 1 pg 11-14

Back 17

The "how much" analysis; attempts to accurately measure risks by using acceptable traditional methodologies which calculate relative values.

Front 18

What are the three general theories of risk control?

sect. 1 pg 12

Back 18

1. Human approach-people cause accidents

2. Engineering approach - things & energy cause accidents

3. Systems approach-systemic failures or weaknesses cause accidents

Front 19

Define risk financing and the three components to it.

sect. 1 pg 13

Back 19

The acquisition of internal & external funds to pay losses at the most favorable cost.

1. retentions (aka: deductibles) either active (planned) or pasive (oops!)

2. Transfer of financial responsibility -external funds to pay losses (hold harmless or indemnify)

3. Insurance

Front 20

Define risk administration.

sect. 1 pg 13

Back 20

Implementation & monitoring

Front 21

Components of the Total Cost Of Risk (TCOR)

sect. 1 pg 16

Back 21

1. Insurance costs/premiums
2. Retained losses (passive or active)
3. Risk Mgt dept costs (salaries, admin training, travel, Risk Mgt Info System, Mgt overhead)

4. Outside services fees (TPA's, consultants)
5. Indirect costs (Disruption in production/sales, O/T, social costs)

Front 22

TCOR is used as a key risk management tool to assist with:

sect. 1 pg 20

Back 22

1. Making effective risk mgt. decisions

2. Measuring progress toward risk mgt. objectives

3. Focusing on & promoting safety & loss control by communicating the financial impact of a loss on the TCOR & sales/revenue

4. Providing mgt. & employee incentives

5. Pricing of products & services

6. Assisting w/effective management of financial budgets

Front 23

Seven (7) uses of risk analysis

sect. 1 pg 23

Back 23

1. Prioritization of risk factors

2. Verification of loss data

3. Classification of loss data

4. Prediction of losses & ranges of losses

5. Cost-benefit decision making (IMPORTANT)

6. Net present value (NPV) analysis

7. Review of insurance program structure to determine a) viability of a retention program b) amount of retention c) Insurance purchasing decisions, including limits of liability

Front 24

Risk analysis tools

sect. 1 pg 24

Back 24

1. Tools used to assess the LIKELIHOOD an event will occur (a) loss analysis (b) risk mapping or risk factor analysis (c) probability analysis (d) Linear regression

2. Tools used to assess the IMPACT of the vent should it occur (a) payback analysis & accounting rate of return (b) Cost-benefit analysis (c) NPV analysis (d) Internal rate or return (IRR) method

Front 25

What is the purpose of qualitative analysis & its characteristics

sect. 2 pg 4

Back 25

-identification & eval of loss exposures that CANNOT BE EASILY MEASURED by traditional statistical or financial methods

-attempts to assign relative values to determine implications & scope of effects risks have on an org; does not try to assign hard financial values to assets, expected losses & cost of controls

-Helps mgt understand the potential impact of the org's ultimate risks on performance.

Front 26

What is the characteristics of qualitative analysis?

sect. 2 pg 4

Back 26

1. Conducted using questionnaires, surveys, task forces, workshops & collaboration w/a variety of internal & external knowledgeable groups related to an org.

2. Frequently addresses the following questions: (a) SHOULD we do this? (b) What is the impact on the org's REPUTATION & MORALE

Front 27

What are the purposes of quantitative analysis?

Sect. 2 pg 5

Back 27

Attempts to accurately measure risks by using acceptable traditional methodologies to calculate relative numerical values.

Front 28

What are the characteristics of quantitative analysis?

sect 2 pg. 5

Back 28

1. Conducted by using analysis of losses, exposures, costs, benefits & financial statements (data from the past)

2. Frequently addresses the following: CAN we do this? What is the FINANCIAL impact of this?

Front 29

What are the three (3) reasons to use both qualitative and quantitative analyses?

sect 2 pg. 5

Back 29

1. Valid answers are NEEDED (ie: predicted losses, value of claims"

2. Costs & benefits are PRIMARY FACTORS of DECISION MAKING

3. Non-monetary factors are part of the DECISION MAKING PROCESS (ie: reputation, morale)

Front 30

What are measurement scales of qualitative analysis?

sect. 2 pg 7

Back 30

Depict relative values that ARE NOT easily quantified (with numbers)

1. Critical risks (that could bankrupt the business, shut down ops)

2. Important risks (could result in losses resulting in org. borrowing external funds to continue ops.

3. Less important risks (could result in loss w/low financial impact not harming ops & paid from existing cash flows)

Front 31

Name the areas of Qualitative Analysis (7).

Sect. 2 pg. 9

Back 31

1. Management appetite for risk

2. Innovation, product development & marketing

3. Contractual

4. Compliance & regulatory requirements

5. Safety (internal & external)

6. Social responsibility and citizenship

7. Internal policies

**all depend on the industry**

Front 32

Name the eight (8) factors in determining a management's appetite for risk?

Sect. 2 pg 9

Back 32

1. Company history

2. Long-term objectives (may be in a financial statement)

3. Growth mode or stage in growth style

4. Financial stability (company stable, less risk)

5. Market maturity

6. Competition & need to take risks

7. Public image

8. Appetite for risk vs. financial ability

Front 33

Name the nine (9) factors in determining appetite for risk related to innovation, product development & marketing?

(touchy-feely; qualitative)

Sect. 2 pg 9

Back 33

1. Criticality to the org.

2. Market positioning & market share

3. Competition

4. State-of-the-art product dev't

5. Business interruption exposure (likelihood?)

6. Technology

7. Production capacity

8. Degree of automation/internet marketing

9. Nature of ops ie: inherently hazardous

Front 34

Name the three (3) factors in determining appetite for risk related to contracts.

(qualitative)

sect. 2 pg. 11

Back 34

1. Enforceability of HOLD HARMLESS and indemnification agreements under app. jurisdictions.

2. Willingness & financial ability of other party to perform

3. Financial capability & attitude of insurers providing additional insured status & contractual liability

Front 35

Name the five (5) factors in determining appetite for risk related to compliance & regulatory requirements.

(qualitative)

sect. 2 pg. 11

Back 35

1. Industry subject to heavy regulations*

2. Management awareness or regulatory governmental requirements (ie: ObamaCare)*

3. Possible industry & voluntary regulation (ie: licensing requirements)

4. Penalties, fines & public image

5. History of enforcement

*not in every industry b/c not are all regulated

Front 36

Name the ten (10) factors in determining appetite for risk related to safety (internal & external).

(qualitative)

sect. 2 pg. 12

Back 36

1. Union concerns related to safety

2. Ergonomic audits

3. Existence of safety programs

4. Level of MANAGEMENT support for safety programs

5. Ability to recruit & retain workforce

6. Implications on employee productivity (does it affect safety?)

7. Crisis management plan

8. Disaster recovery

9. Security plan (ie: card keys, security co.)

10. Possibility of terrorism

Front 37

Name the four (4) factors in determining appetite for risk related to social responsibility & citizenship.

(qualitative)

sect. 2 pg. 12

Back 37

1. Industry profile - high or low

2. Management's concern w/reputational risks

3. Effect of negative press

4. Use of outside auditors

Front 38

Name the five (5) factors in determining appetite for risk related to internal policies.

(qualitative)

sect. 2 pg. 13

Back 38

1. Audit & oversight (internal? external? board involvement? are they audited?)

2. Employment issues (leased ees, contract, seasonal, mobile workforce, EPLI)

3. Product guarantees (do they have)

4. Product recall (has this happened)

5. Ethics policies & procedures (do they have)

Front 39

Identify the three (3) exposures that have a financial impact on the organization but may be hard to quantify.

Sect. 2 Pg. 14-16

read the section

Back 39

1. Revenue Growth

2. Profitability (criticality, adequacy of return, Industry standards, stockholders expectations, Mgt. implications)

3. Financial Capacity

Front 40

What is the purpose of quality loss data?

Sect. 2 pg 17

Back 40

Application of various methods of ANALYZING LOSS DATA to IDENTIFY & UNDERSTAND the potential impact those LOSSES MAY HAVE on the org's risk mgt. program & the TOTAL COST OF RISK.

(Loss Data Analysis).

Front 41

What are the characteristics of quality loss data?

Sect. 2 pg 17

Back 41

1. Completeness

2. Consistency

3. Integrity

4. Relevancy/Relevant Data

Front 42

What factors are best practices for loss data COMPLETENESS (3)?

Sect. 2 pg 17

Back 42

a) FREQUENCY- at least five (5) yrs of data preferably 10+ yrs & at least 30 data points/year b) ADEQUATE DETAILS about each data record

c) Understanding components of PAID & RESERVE amounts ie: Allocated Loss Adjustment Expenses (ALAE), Incurred But Not Reported (IBNR), defense costs

Front 43

What factors are best practices for loss data CONSISTENCY (3)?

Sect. 2 pg 18

Back 43

1. Same types of data s/b provided for each record

2. Consistent policy year, data record year, or calendar year

3. Consistent recording methodology ie: from one carrier/TPA to another

Front 44

What factors are best practices for loss data INTEGRITY (2)?

Sect. 2 pg 18

Back 44

1. Data s/b current

2. Data s/b checked for accuracy related to the type of info & reserves from its sources ie: insurance carrier, TPA or in-house claims mgt

Front 45

What factors are best practices for loss data RELEVANT DATA (5)?

Sect. 2 pg 18

Back 45

1. Data should yield info on legitimate matters/concerns

2. Discontinued/divested/third party ops should not be included

3. Acquired Ops SHOULD NOT be included if org is only a portion or a particular part of operation

4. Commingling of data-don't include if ops are not consistent (ie: widget factory & a restaurant)