Transcript INDIAINSURE - Indiatimes

RISK MANAGEMENT :
JOURNEY OR DESTINATION ?
What is Risk?
“Any uncertain event that could significantly enhance or impede a
Company’s ability to achieve it’s current or future objectives, including
failure to capitalize on opportunities……”
The possibility of good
things not happening
(risk as opportunity)
The potential that actual
events will not equal
anticipated outcomes
(risk as uncertainty)
New
Technologies
New markets
The threat of bad things
(risk as hazard)
Exchange rate
fluctuations
Coal price fluctuation
Flood or Fire
Risk Management
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Risk Management is the process of defining all
the risks that an organization faces
Building a framework to not only monitor and
mitigate those risks but to use risk management
to increase shareholder value
The point of risk management is not to eliminate
it; that would eliminate reward
The point is to manage it………
Shareholder value
Need for Risk management
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Uncertainty in Enterprise
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Growing Complexity in Business Environment
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Statutory Obligations
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Contractual Obligations
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Social Obligations
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High Profile Corporate Failures
Current Approach to
Risk Management
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Traditional approach—Silo approach
 Physical risks
 Property risks
 Currency risks
 Interest rate risks
 Commodity risks
 Credit risks
Transaction orientation
The Universe of Risk
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
Traditional Risks V New Risks
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Traditional Risks
 Easily describable and readily assessable
in monetary terms
 Amenable to classic Risk Management
New Risks
 Identifiable to a limited extent and not
easily assessable (if at all)
 Require skills of Extended Risk
Management
Why Enterprise Wide Risk
Management
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Segmented approach leaves uncovered gaps
which EWRM can plug
EWRM could result in cost optimization
Leads to closer integration of operations with
the mission of the Company.
Is a well defined and integrated process.
The new perspective on risk management
“Good risk management should enable options while protecting value already created.”
Risk Management Process
Set
Objectives
Objectives are set at the strategic level,
establishing a basis for operations,
reporting and compliance objectives
Identify Risks
Identify the most relevant risks, based
on the entity/SBU/Process objectives
and situation
Assess Risks
Evaluate the level of risks, based on
probability and the significance of their
potential impact
Control/Act
Decide appropriate management action
to respond to assessed risk
Monitor/Report
Monitor the implementation and
success of risk mitigation action plan.
Report to the appropriate level to meet
reporting requirements
Process of Risk Management
Administration procedures
Business Objectives
Business Process
Definitions
Monitoring mechanism
Organization Structure
Documentation of Process
Delegation of Authority and
Responsibility Definitions
Cost benefit analysis
Internal Controls and
Systems Documentation
Risk Transfer Procedure
Risk Transfer Policy
Risk Definition
Components of Risk
Evaluation of Risks
Probability Analysis
Valuation process and
guidelines
Risk Definition
Definition of Valuation Model
Components Pricing
Risk Valuation
Risk Mitigation
Process of Risk Management
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Risk Identification
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Risk Measurement
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Risk Control
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Risk Transfer
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Risk Financing
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Risk Retention
Insurable Risks
PROPERTY RISKS
Damage to Physical Assets
 Acts of God
 Accidents
 Break down
PEOPLE RISKS
FINANCIAL RISKS
Monetary Loss from
 Theft and Burglary
 Business interruption
 Bad credit
LIABILITIES RISKS
Loss to Employees
 ILL Health and accident
 Death
 Overseas travel
Loss from Operations
 Product liabilities
 Public liability
 Directors & Officers
liabilities
 Errors & Omissions
liabilities
Emerging issues in Insurance
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De-tariffing
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ART
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Captives
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Derivatives
Stakeholders Expectations
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Stakeholders
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Customers
Shareholders
Employees
Society
Government
Suppliers
Financiers
Understanding Expectations
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Establish what shareholders value about the
company
Identify the risks around key value drivers
Determine the preferred treatment for the
risks
Communicate risk treatment to the
shareholders
Elements of Risk Management
Architecture
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Senior Management/Board commitment
Integration with Business Process
Risk Management Structure
Risk Management Reporting
Change Management responsibility
Communication and training
Reinforcement through HR mechanisms
Monitoring of risk management process
Risk Management Roles &
Responsibilities
Party
Brief Role & Responsibility
Chief Executive
Officer
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Risk Management
Committee
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Risk Manager
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Audit Committee
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Ensures the implementation of risk management
framework and process and ongoing risk assessment
of risks.
Promotes risk culture and ensures the risk
management process is sustained organization wide.
Defines the risk management policy framework and
process.
Promotes and implement monitoring of risk
management strategies and policies.
Is the risk management process owner.
Ensures the implementation and compliance with the
risk management policy and process.
Ensures adequacy of control frameworks to manage
risks across the organization - monitoring.
Treatments of Risks
Risk management is a Continuous Journey
THANKS FOR YOUR TIME
AND
ATTENTION