1. Risk management in insurance IARM
GROUP ASSIGNMENT
REPORT O
RISK MA AGEME T I
I SURA CE SECTOR
Raja Chaitanya Vikram. G
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2. Risk management in insurance IARM
Financial Risk Management for Insurance Companies
Global demographic changes and calamities such as the Asian Tsunami, the
swine flu, Hurricanes Katrina and Rita, and the avian flu, have forced domestic
and international insurance companies to focus not only on what products they
offer but also how to improve their asset and liability management, along with
their financial risk management processes and systems.
Increasingly, insurance companies have become very active in utilizing a wide
range of OTC and exchange traded derivatives to hedge their market and credit
risks. The last few years have seen resurgence in the issuance of insurance-
linked instruments, such as property catastrophe bonds, securities funding life
insurance reserves, insurance risk swaps, and Industry Loss Warranties (ILWs).
Insurance company risk managers and financial professionals focusing on the
insurance sector would learn the process by which insurance companies are
identifying, measuring, monitoring and controlling their financial risks. This
course will be supplemented by domestic and international case studies and
recent articles on topical themes in the insurance sector.
Ref: http://www.nyif.com/courses/risk_1010.html
Process of Risk Management:
Risk Identification
Risk Measurement
Risk Control
Risk Transfer
Risk Financing
Risk Retention
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3. Risk management in insurance IARM
“Risk Management is the Identification, Analysis and Economic
Control of those RISKS which can Threaten the Assets (Property,
Human) or the Earning Capacity of an Enterprise”
ENTERPRISE
OPERATIONS FINANCIAL STRATEGIC KNOWLEDGE
PROCESS CAPITAL STRUCTURE STAKE HOLDERS INTELECTUAL
PROPERTY
PHYSICAL ASSETS REPORTING GOVERNANCE INFORMATION
MANAGEMENT
PEOPLE CREDIT AND LIQUIDITY MARKET STRUCTURE SYSTEMS
LEGAL MARKET
Risk Assessment in Bajaj Allianz Insurance
Insurance:
FI A CIAL IMPACT:
Threshold Limit to be decided based on Size of the corporate.
PROBABILITY OF OCCURRE CE:
Organization history & Industry Experience to be considered
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4. Risk management in insurance IARM
Handling Risk:
Risk Levels
Low & ormal Monitoring at the operational level
Medium
High Close control of all potential contributing factors by the Risk
Management Team
Very Risks of this level should be actively tracked for decisions by
High the Risk Management Committee.
Enterprise Risk Management:
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5. Risk management in insurance IARM
Risk management in Insurance:
• All Risks are not Insurable
• Essentials of Insurance
o Insurable Interest
o Utmost good faith
• Procedure for Insurance
o Identification of Risks
o Quantify the Insurable value
o Evaluate the choices
o Proposal
o Payment of premium
o Policy Documentation
• Claims
• Administration System
Focus Areas for Insurance Management:
Identification of Internal & External Pure Risks
o Existing Risk Control Measures Review
o Risk inspection
o Risk Audit
Scrutiny of Existing Insurance Covers
o Coverage
o Rates & Deductibles (Compulsory self insurance)
Defining Standard SOP for Claims Control
o Guidelines on documentation
Key Areas of Consideration:
Choice of Insurer
o Industry Rating
o Claims Settlement ability
o Sustainability of the company
o Service levels & infrastructure
Choice of Intermediary
o Representation of the insurance market
o Knowledge of insurance amongst all industry segments
o Service levels & infrastructure
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6. Risk management in insurance IARM
Emerging Challenges:
De regulation of Indian Insurance market
Global markets impact on Local market
Options for self insurance
Market driven pricing
Risk Management and Insurance Planning:
Every organization is exposed to various risks. While many of them are pure risks like
Fire, explosion, chemical release etc., some of them are speculative. Pure risks are
Handled as operational and safety issues by professionals and finance personnel
Have to address the risks arising out of failure of above operational and safety
Measures. Together they need to ensure that the organization is able to withstand any
Risks or failure of systems and can continue its operations without much struggle. The
Risk Management and Insurance Planning is required for any organization to review
their risk management strategies and to opt for risk transfer measures like availing
Insurance cover etc. Many a times the coordination between the technical or operational
Departments and finance department is difficult and an unbiased study on technical risk
Management measures adopted and insurance practices followed will help the
Management of the organization to manage the risk effectively and profitably.
Risk management for micro insurance:
Micro insurance is a financial product that offers another form of protection Against the
possibility of a loss. Micro insurance also applies the idea of pooled risk, just on a bigger
scale. Instead of sharing the risk among a small group of Community members as mutual aid
groups do, micro insurance spreads the risk to a much larger number of people (i.e.,
policyholders) who are more diverse in where they live, what kind of work they do, and how
much money they earn. When a lot of people from many different places buy the same
insurance policy, the money they pay for their insurance policies goes into one fund that the
Insurance company uses to pay benefits to those policyholders who are hit with a crisis. In
this way, everyone pools their funds and shares the risk of a crisis happening to any one of
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7. Risk management in insurance IARM
them. Micro insurance is a risk pooling Mechanism tailored to the needs of low-income
families in terms of costs, Duration, coverage and delivery. Purchasing micro insurance is an
action to take Before a crisis occurs in order to protect against loss and give peace of mind.In
contrast to the familiarity of a community-based mutual aid society, people who buy insurance must
place their trust in a commercial entity. It is the insurance company, not the policyholders, that
manages the funds, collects the premiums and pays out the claims. When an insured event happens,
one has to trust that the insurance company will respond. Thus, one must choose an insurance
company that is reputable, financially sound, and regulated in some way.
There are many different types of insurance for each of the risks most people face. Property insurance
will protect a home, business or other valuable assets against theft and damage due to fire or natural
disasters. In many countries, the government requires anyone who owns a motor vehicle—such as a
car or motorcycle—to purchase vehicle insurance. Health insurance can protect one against the high
cost of medical care. Some health policies will only pay for the catastrophic events that require
expensive hospital stays and treatment; others will pay for routine medical care, including regular
check-up visits to the doctor. Life insurance provides a payment to the family of the policyholder
upon his death, allowing the family to better manage the loss of his income. Many microfinance
institutions require that borrowers purchase a “credit-life” policy which will pay the borrower’s
outstanding loan balance should the borrower die before the end of the loan term. The confusion about
what insurance is, how it works and how it can help leads to widespread reluctance to purchase
insurance or renew existing policies. For many, insurance is a perplexing product. However, people
can begin to find the basic answers they need by learning to ask some key questions about insurance.
THANK YOU
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