Workshop Agenda Introductions General/Safety Cell Phones Purpose Approach Q & A Time Evaluations

Workshop Materials Used

Old New Borrowed And True

Organizational Objectives Profit Operating Efficiency Continuous Operations Stable Earnings or

Revenue Stream Growth Legal Compliance Humanitarian Concerns Reputation

Risk Management A system for planning, organizing, leading, and

controlling the resources and activities that an organization needs to protect itself from the adverse effects of accidental losses.

Goal- To reduce the exposure to loss for the organization.

Risk Management Objectives

Pre-Loss

Economy of RM Operations

Tolerable Uncertainty

Legality Ethical Approach Social

Responsibility

Post-Loss

Survival Continuity of

Operations Profitability Stable

Earnings/Revenue Social Responsibility Growth

Strategy/General

Risk Financing

Management Reporting Risk Management Advice

Claims Management

Safety/Loss Control

Claims Analysis

RM Advice

Communication

Risk Management Responsibilities:

Administration

Key Partnership Building

Risk Management(Traditional

Role)

Legal

Executive Management

PlanningConstructionReal Estate

Human ResourcesBenefits

Operations/Unions

Contracts Admin.

Internal Audit

FinanceAccounting

Insurers3rd Party

Administrators

Safety/Security

Brokers

Regulatory Compliance

Major Types of Exposures

Property Buildings-Business Personal Property Rolling Stock- Personal Property of Others

Liability Legally Enforceable Obligation

Personnel Key Personnel and Officers and Directors

Net Income Revenue Reduction/Expense Increase/Both

Basic Risk Management Decision-Making Process

1. Identify Exposures to Loss. (Analyze)

2. Examine Feasibility of Alternative Techniques

3. Select Most Suitable Technique

4. Implement Chosen Technique

5. Monitor and Evaluate Performance of the Risk Management Program. Modify as needed.

Step 1-Identify/Analyze Exposures to Risk

Standardized Surveys/Questionnaires

Financial Statements (Budget-P&L-CAFR)

Records and Files Flowcharts (Fault Tree

Analysis) Personal Inspections Experts (Internal &

External) Benchmarking

Step 1-Identify/Analyze Exposures to Risk

“Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match or even surpass them at it.”

Unknown

Risk Management Techniques

Avoidance- Ceasing or not undertaking an activity that creates exposures to loss.

Loss Prevention- A technique that reduces frequency of a particular loss.

Loss Control - A technique that reduces the severity of a particular loss.

Risk Transfer - Shifts the financial consequences of loss to another party or insurer.

Risk Finance - An conscious act or decision not to act that generates the funds to pay for losses.

Step 2-Examine Feasibility of Alternative Techniques

Loss Frequency Loss Severity Maximum Possible

Loss (MPL) Probable

Maximum Loss (PML)

Loss Frequency and Loss Severity

Interaction

Basic Approach Frequency and Severity

Interaction

Frequency Severity Remedy

High High Avoid

High Low Retain

Low Low Retain

Low High Transfer

Risk Mapping Approach Frequency and Severity

Interaction

High Severity

Low Severity

Low Frequency

High Frequency

High Impact

Low Likelihood

Transfer

High Impact

High Likelihood

Avoid

Low Impact

Low Likelihood

Retain

Low Impact

High Likelihood

Retain0

0 5

5

2.5

2.5

Too Late For A Break?

Risk Management TechniquesLoss Prevention- Pre-Loss

Activity Loss Prevention

System and Behavioral Safety Training Good Housekeeping and Proper Storage

Practices Proper Installation and Maintenance of

Equipment Accepted Procedures for Welding, Hazardous

Material Handling Adherence to Safe Work Procedures Machinery Guards Improved Building Materials

Risk Management TechniquesLoss Control- Concurrent Loss

Activity Loss Control Devices/Materials - Products that are

triggered during a loss or are made with special material to control severity of injury and/or destruction of property.

Separation - Disperses a particular asset or

activity over several locations.

Duplication - Uses back-ups, spares or copies of critical property, information or capabilities and keeps them in reserve.

Risk Management Techniques Risk Transfer

Contractual Risk Transfer- Indemnity Agreements Hold Harmless

Agreements Insurance Requirements OCIPS and CCIPS Financial Capacity of

Insurers Additional Insured

Agreements Waivers of Subrogation Proof of Coverage

Certificates Insurance Policy

Endorsements Obtaining Certified Copies

of Policies

Risk Management Techniques Risk Transfer

Insurance- A technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer at a guaranteed cost. Declarations Insuring Agreements Conditions Exclusions

Risk Management Techniques Common Insurance Coverages Liability Auto Liability Privacy and Security

Liability (Cyber) Workers’

Compensation Employer’s Liability

Employment Practices Liability

Environmental Liability

Property Earthquake Flood

Business Travel Accident

Builder’s Risk Railroad Protective Crime

Risk Management Techniques Risk Finance

Insurance- Used as a finance technique for catastrophic losses.

Self-Insurance- A technique that described special situations in which risk retention has been consciously selected as the appropriate risk management technique.

Large Deductible Program- insurer assumes full statutory liability while employer retains a significant portion of the risk.

Expected Losses Market Conditions Corporate Philosophy Risk Control

Commitment Financial Position

Geographical Locations Loss Payout Patterns Effective Tax Rate Corporate Ownership Cash Flow Comparisons

Factors in Designing Risk Financing Programs

Factors in Designing Risk Financing Programs

Net Present Value

Today’s $ is worth more than tomorrow’s $ because of investment income implications.

Net Present Value Cash Flow Versus Guaranteed Cost

Comparison

$428,825

$787,871

$1,505,963

972,424 972,424 972,424

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Optimistic Expected Pessimistic

Loss Scenario

Net

Cas

h Fl

ow

Self Insurance

Guaranteed Cost

Qualified Self Insurance Formalized retention program Excess insurance purchased for losses

exceeding limit Qualification requirements vary by state Positive cash flow Ability to influence program costs Unbundled services Administrative requirements

Definition of Large Deductible Program

A policy in which the insurer assumes full statutory liability to all workers within the scope of coverage, in the same manner as any other workers’ compensation policy, while the employer assumes a contractual obligation to the insurer under which the employer retains a significant portion of the risk.

Large Deductible Loss retention plan Excess insurance covers losses above

deductible Positive cash flow Ability to influence program costs Access to insurer services Collateral requirements Tax deduction disadvantage

Costs Included Expected losses Primary and excess

premiums Claims handling Taxes Assessments Loss Control

Broker fees Collateral Fronting costs Residual market loads Boards and bureaus State funds

Questions?