ENTERPRISE RISK MANAGEMENT

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ENTERPRISE RISK MANAGEMENT

• M. RAMADOSS
• CMD, ORIENTAL INSURANCE

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• Dont take any risk
• is a Grand Fathers advice to his Grand Son.
• This is true even to date.

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Risk the perception

• 1. Could any one have anticipated the events of
  
• 9/11?
• 2. Could any one have anticipated a Tsunami in
  South
• India?
• 3. Could any one have anticipated Black Mondays
  and
• Black Fridays?
• If the answer is no we go to the next slide.
• Otherwise we go back to the basics again.

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Risking the definition

• It is too Risky to try to define a risk.
• Risk is an opportunity
• Risk is an event capable of pushing you
• up or down
• Risk is either a rope in the dark or a snake.

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RISK MANAGEMENT

• The success of an enterprise depends upon its
  capacity to anticipate, avoid, accept, mitigate
  and exploit risks.
• But the main question is when to do what?

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ERM- an approximate view

• ERM is the measure of an organization's
  capabilities to
• Anticipate
• Avoid
• Accept
• Transfer
• Mitigate
• risk-related activities in to a coherent
  framework.

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ERM - Categorisation

• ERM Classification can be based on
• Environment Internal External
• Control Manageable Unmanageable
• Facility Opportunities Threats
• Type Operational, Financial, Business
• Tolerance Bearable Transferable

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Transferable Risks

• These are the risks which an organisation need
  not carry on its back. A typical example is
  insurance.
• By insuring its properties, an enterprise shifts
  the risk of possible loss to the Insurance
  Company.

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ERM The Insurers views

• All Risks are not insurable
• For instance, business risks such as competitive
  pressures and loss of customers and market cannot
  be insured.
• Financial Risks can be managed with fiscal
  methods like hedging, forward trading etc.

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ERM Insurers View

• In Insurance, the premiums are charged based on
  the possibility and magnitude of a loss.
• It follows that where the risk perception is low,
  the premium rating will improve.
• Iron rods are bound to carry less fire premium
  than coal or camphor.
• Business units will have to so arrange their
  value clustering that their premium outgo drops
  down.

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Good Risk ManagementPays

• In the present tariff regime,
• In Fire Department, Discounts are provided for
  good features of a risk like Low Claims or
  provision of Fire Fighting Facilities, even up to
  about 25.
• In Motor policies, No Claim Discount of various
  percentages up to 50 is given for claim free
  years. Similarly, premium loading is also
  provided for claim prone customers

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Good Risk ManagementPays

• In Detariffed Scenario, which is expected
  shortly,
• Premiums will depend mainly upon claims
  experience.
• Organisations which follow ERM practices will
  find favour with reduced premium outgo
• With better ERM, Companies will develop
  confidence of bearing higher deductibles which
  will help them earn higher discounts in premium

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ERM Insurers Views

• So, what is expected of a customer?
• - identify a Risk Manager
• - charge him with the duties of
• avoiding /mitigating risk factors
• - involve the whole organisation in
• loss minimisation efforts

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Insured Risks

• Rules to follow when insuring risks
• Do not over insure. Classify the risks in to
  those which the organisation can face themselves
  and those which need transfer.
• Insure for full value or on replacement basis
  to get full indemnity

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INSURANCE IN ERM

• Value Distribution in various locations-
  automatic trigger if the value exceeds
  pre-determined limits
• Additions to assets should not be omitted for
  insurance
• Monitoring of Sum Insured to ensure its adequacy
• Sufficiency of values in Marine Open Policies to
  be carefully monitored

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INSURANCE IN ERMContinued

• Right-sizing the deductibles (self-insurance) to
  derive economical premium
• Typical Good features in any property risk
• Fire Safety Rules followed in construction
• Adequate Fire Fighting Equipments
• Anti-burglary gadgets/ measures
• Regular maintenance of equipments including
  planned shutdowns
• Reduced time gap for project restart after an
  incident

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INSURANCE IN ERM

• Insurance thus has a huge role in ERM
• ERM conscious organisations pay great attention
  to their Insurance programs
• Recent Regulatory Developments like Basel II
  consider Insurance Programs as vital
• As the asset values and Liability Limits swell,
  insurance premiums become a major outgo, where
  economy is desirable and made possible by better
  risk management.

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QUESTIONS?

• M. RAMADOSS
• 011 23265024
• mramadoss_at_orientalinsurance.co.in