Risk Management & Insurance

May 11 – 15, 2015

OCDI – Facilitator: Tonderayi Chikanda

Course Objectives The aim of this course is to familiarize participants with the basic concepts of risk

management and insurance.

Its purpose is to provide participants with background information on risk

management so they can be aware of the exposure to losses, choose the right

techniques and be able to prepare a risk management plan.

Introduction to Risk Management & Insurance

Risk and Insurance People seek security implying that a sense of security

may be the next basic goal after food, clothing, and shelter.

An individual with economic security is fairly certain that he can satisfy his needs (food, shelter, medical care, and so on) in the present and in the future.

Risk is the possibility of losing economic security. Most economic risk derives from variation from the expected outcome.

Historically, economic risk was managed through informal agreements within a defined community.

If someone’s barn burned down and a herd of milking cows was destroyed, the community would pitch in to rebuild the barn and to provide the farmer with enough cows to replenish the milking stock.

This cooperative (pooling) concept became formalized in the insurance industry.

How Insurance Works Insurance is an agreement where, for a stipulated

payment called the premium, one party (the insurer) agrees to pay to the other (the policyholder or his designated beneficiary) a defined amount (the claim payment or benefit) upon the occurrence of a specific loss.

This defined claim payment amount can be a fixed amount or can reimburse all or a part of the loss that occurred.

The insurer considers the losses expected for the insurance pool and the potential for variation in order to charge premiums that, in total, will be sufficient to cover all of the projected claim payments for the insurance pool.

The premium charged to each of the pool participants is that participant’s share of the total premium for the pool.

Each premium may be adjusted to reflect any 3 special characteristics of the particular policy.

As will be seen in the next section, the larger the policy pool, the more predictable its results.

History and Functions of Insurance The history of insurance describes the development of the

modern business of insurance against risks, especially regarding cargo, property, death, automobile accidents, and medical treatments.

The industry helps to eliminate risks (as when fire insurance companies demand the implementation of safe practices and the installation of hydrants), spreads risks from the individual to the larger community, and provides an important source of long-term finance for both the public and private sectors.

The insurance industry is generally profitable and provides attractive employment opportunities for white collar workers.

THE FRAMEWORK,….

It refers to a set of components that provide the foundations and organizational arrangements for:

Designing, implementing, monitoring, reviewing and continually improving risk management throughout the organization”.

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The Framework…

“Is a set of components that provide a structure that will facilitate the use of a consistent risk management process.”

“It is a set of components that support and sustain risk management throughout an organisation” (ISO,2009).

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Framework…

Risk management framework supports the risk management process.

Therefore, it must first be established before starting to conduct the risk management process.

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Components of Risk management framework:

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RISK STRATEGY,….

Risk strategy-

Documents statements of the overall philosophy.

Commitment, appetite, attitudes, intentions, and direction of an organization related to risk management .

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RISK GOVERNANCE STRUCTURE…

This is a risk management structure also known as

risk management architecture,

It defines role, responsibilities of organs, officials and

every employee in the organization.

It also outlines the communications and reporting

structure within the organization.

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Risk Management Protocols,…

Risk management protocols represent the risk

management procedures which define:

The risk management guidelines rules and procedures,

Risk management methodologies, tools and techniques

that should be used in the organization.

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Risk Management Policy… The components discussed earlier supports risk mgt

process,

Point to remember Risk management process is as a systematic application of

management policies, procedures and practices. To the activities of communicating, consulting, establishing the

context, and identifying, analyzing, evaluating, treating, monitoring and reviewing risk.

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QUESTIONS

WITH THANKS