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 Planning Construction Real Estate Human Resources Benefits Operations/Unions Contracts Admin. Internal Audit Finance Accounting Insurers 3 rd 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 Avoid HighLowRetain Low Retain LowHighTransfer

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 Retain

Too Late For A Break?

Risk Management Techniques Loss 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 Techniques Loss 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

 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

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

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