ARM 402
Basel II
Second of the Basel Accords which are recommendations for banking laws and recommendations. Tells banks how much capital to put aside for cloudy days. By Basel Committee on Banking Supervision (BCBS).
Difference between following-form and self-contained policy
Self-contained is subject only to its own provisions
Retention
Space between lowest and highest permiums that can be charged
Excess Liability Policy
A policy that covers liability claims in excess of the limits of an underlying policy or a stated retention amount. Following Form: if the policy covers the excess is covered too Self-contained: unique and may be different from the original policy
Risk Retention
accepting that some risks simply arise in the course of one's life and consciously retaining that risk - assumption of risk in which gains and losses are retained within the organization
US based company w/ controlled master program
Has one program based in the US that covers all operations
Modifying likelihood of contractual liability
Have a contract lawyer review (before they're signed)
indemnitor
In a Surety agreement, one who agrees to reimburse the surety for any loss it may suffer from having bonded the principal.
Modifying the Consequences of Statutory Liability
Organizations often plead that the statute was unconstitutional or was too vague or ambiguous to be enforceable. If the statute has already been tested on this defense and upheld by a higher court, it will likely not be effective.
Assessing strategic risk
goal isn't to eliminate negative risks and/or their consequences; it's to use information about strategic risks to make holistically informed decisions that optimize the risk-reward ratio. This can be difficult because strategic risk is the most intangible and abstract of the four risk quadrants.
Generic mark
marks that are so common they cannot receive federal trademark protection (NOT implied mark)
3 types of patents
- Utility: new machine/chemical/process/method - Design: ornamental features of a product - Plant: biological a-sexual reproducing plant
Vehicle Selection
- goal to transport cargo and people safely - consider: size, type, and weight of cargo - also consider: cargo potential to shift, cargo center of gravity, number of passengers, geographic area where it'll be used
3 factors that make something a trade secret
- secret from the public -economic value to the holder is due to secrecy -holder is deliberate in its attempt to maintain secrecy (determination that an invention is a trade secret is often made by the courts)
Vehicle fleet systems have four common features that must be analyzed to prevent losses
-Components -Purpose -Environment -Life cycle
Questions That Help Develop a Strategic Plan
-Is the plan suitable? --- appropriateness for the organization and marketplace, the likelihood that personnel will support the strategy, and changes needed to fully implement -Is the plan financially feasible? --- Resource allocation, cost, and overall impact (and cost of delaying other plans) -Is the plan acceptable? --- Executives should determine whether the strategy will yield an acceptable overall return on investment (including loss in other areas of opportunity because you can't do everything) -What risks are associated with the plan? --- may present obstacles to success and determining how much risk the organization can accept
Characteristics of a successful fleet system
-Reliable -Safe and well maintained -Efficient -Environmentally neutral -Lawful
Copyright Ownership
A work's creator owns the copyright to the work Unless the work is a work made as part of their job (employer owns), they commissioned it (owned by the commissioning party), or if the author sells the copyright
How subprime mortgages crashed the system
variable rate mortgages made it so that people couldn't afford their mortgage payments - value of mortgage-backed securities fell steeply (global financial crisis)
Risk appetite
how much risk the org wants to take on
Deciding which strategies to use to meet strategic goals
how to avoid, exploit, or manage risks - By combining broad goals/strategies and risk-treatment priorities, they can be used to influence each other and enable the organization to determine where capital, employees, and other resources should be allocated to produce the best possible returns
Bow tie diagram
identifies a risk and then lists its possible causes and possible consequences on either side - to see how possible risk leads to outcomes (causes left consequences right)
Contingent Surplus Note
(only for insurers) Surplus notes [unsecured debt instrument w/ characteristics of both conventional equity and debt securities and is classified as policyholders' surplus rather than as a liability on the insurer's statutory balance sheet] that have been designed so that an insurer, at its option, can immediately obtain funds by issuing the notes at a pre-agreed rate of interest.
Disadvantages of Contingent Capital Arrangements
-interest on repayment -ownership dilution (decreases shareholder % of ownership as company making the arrangement gets a piece of the pie) -new "owners" may not know the business/situation and may make recovery harder
Driver Training
-may train internally or outsource -classroom/independent study/behind-the-wheel/computer simulation -topics: traffic laws, cargo hazards, accidents, safe operations, and road practice
three steps of evaluating strategies
1. Establish performance standards and measurements 2. Compare actual results w/ established standards 3. ID and implement corrective actions when goals are not being met (Example - balanced scorecard: balances specific goals and actions with both long- and short-term and both financial and nonfinancial goals) [needs to be evaluated when internal/external circumstances change or when corrective actions are needed]
5 steps to carry out by mid-level or department managers for strategic plan
1. ID and document processes/tasks/responsibilities 2. Frequently communicate info about the strategic plan 3. Assign specific responsibilities/tasks/authority/accountability 4. Allocate adequate resources (finances/staff/training/time/equipment/space/data/technology) 5. Make necessary adjustments to stay on track for goals
Insurance securitization
1. org transferring risk 2. investor taking risk on 3.special purpose vehicle
Trademark
10 years (renewals available)
Monitoring patent applications
18 months after the patent is filed others can comment on whether it is unique or not - process takes about 3 years to complete
Mortgage-backed securities
1970, when the Government National Mortgage Association (GNMA) began to sell securities that were backed by mortgage loans
Trademarked company
A brand that has exclusive legal protection for both its brand name and its design (protection so that only the owning brand/company can profit off the reputation of said company/brand)
Group Captive
A captive insurer owned by a group of companies, usually operating similar businesses, rather than a single parent.
Hold Harmless Agreement
A contractual provision that obligates one of the parties to assume the legal liability of another party.
Insurance-linked securities (ILSs)
A financial instrument whose value is primarily driven by insurance and/or reinsurance loss events.
Specific Performance
A legal action to compel a party to carry out the terms of a contract.
Civil Law - Legal System
A legal system based on a written code of laws - judge is civil servant who finds the correct legislative provision w/in written code of statutes and applies based on facts (little interpretation and opinion)
civil law
A legal system based on a written code of laws - protects rights and provides remedies for breaches of duty
Common law
A legal system based on custom and court rulings (used in the UK and their commonwealth countries)
Following Forks excess liability
Above and beyond coverage, as long as it would qualify for the underlying policy
Diversification tip
Add another sector outside your standard (generally have oil companies in your portfolio - add a discount retailer as they're outside that line of business)
Effective meetings
Agenda, objectives, anticipated questions, knowledge of subject, invite the right people. Structure should be strong opening, succinct supporting material, and a powerful conclusion. End of meeting should be a plan to execute objectives. Use of visual aids limited but impactful. Start with an attention grabbing fact. Present just enough facts and figures to make it believable.
Securities
All of the investments, including stocks, bonds, mutual funds, options, and commodities, that are traded. Written instruments that represent money or other property.
Copyright
All types of original expression - words/music/sculpture/video/lines of code/literature/graphic art/choreography/songs.
Residual Market Loading
An amount charged to make up for losses in a state-sponsored plan to insure high-risk exposures, such as an assigned risk plan for auto insurance.
Pathos
Appeal to emotion
Logos
Appeal to logic
Risk Assessment Process
Approach: 1) List risks (+ and -) 2) Use risk map to see consequences 3) ID 5 highest priority risks Answer these questions: -What is the risk tolerance and appetite? -What are we doing currently to treat the risk? -Is what we're doing keeping the risk at an acceptable level? -What else can we do to keep the risk at an acceptable level? -Do we move forward with the decision or activity?
Advantage of large deductible plan
Benefit from cash flow available on the retained loss reserves
Self-insured retention (SIR)
Coverage provided after the Insured has exceeded a predetermined amount of loss.
Drop-down coverage
Coverage provided by many umbrella liability policies for (1) claims not covered at all by the underlying policies and (2) claims that are not covered by an underlying policy only because the underlying policy's aggregate limits have been depleted.
Control Objectives for Information and Related Technology
COBIT - framework that would enable organizations to communicate about their IT-related needs, strategies, and governance (not only identifies gaps between the actions of operations and the controls put in place by risk management, but also it helps identify opportunities for improvement in those two areas)
Nonadmitted insurance
Centralized structure
Criminal law
Codes of behavior related to the protection of property and individual safety. Body of law - defines offenses; regulates the investigating, charging, and trying of accused offenders; and establishes punishments for convicted offenders. DIFFERENT: Unlike criminal law, under which the government decides whether to press charges and prosecute on society's behalf, in civil law, an individual victim can file charges
Experience Rating (diff btw retrospective)
Considers losses and adjusts as needed - from previous periods. RETROSPECTIVE - the losses from the current period are taken into consideration.
Guaranteed cost rating premium
Cost doesn't change
When trade secrets are stolen/leaked
Courts may determine that stealer can't use and may have to pay monetary damages
Public International Law
Rules and norms governing relationships among states and international organizations. Interrelation of nation states and is governed by treaties and other international agreements
Admitted Insurance
Decentralized structure
Project backlog
Delayed upgrades to systems/equipment - causing other departments to put off their projects ---frameworks helps prevent this (ID issues w/ projects and solve)
Driver Licensing
Drivers license, classification for vehicles, clean driving record
Systems and Sub-systems
Failure at any level creates risk at other levels - system failures degrade subsystem environment, increasing strain on subsystems and increasing likelihood of failures/accidents
gross combined vehicle weight rating
GCVWR, indicates the maximum weight a vehicle can handle with an attached trailer at full capacity
gross vehicle weight rating
GVWR - max weight a vehicle can safely carry vehicle, passengers, drivers, fuel, and cargo
broad form of hold-harmless agreement
General Contractor agrees to indemnify Building Owner for losses that result from General Contractor's sole fault, both parties' joint fault, or Building Owner's sole fault.
Package Policy
Good for companies like exporters who have no foreign permanent place of business
insurance pool
Grouping together of similar exposure units. Also called risk pool and risk class. financing workers compensation losses, and the pool will process and pay workers compensation claims on behalf of its members
Statutes and Regulations
Laws passed by federal, state, or local legislature. Often assign power to create regulations and delegate this responsibility to a regulatory agency. Regulations: clarify and explain statutes, must be consistent with enacted statute, have the same power or authority as the statue.
Loss limit
Limit of how much loss can be considered for a retrospective plan (doesn't penalize for large events)
Waiver and Exculpatory Clause
Limitation in place to restrict ability to file a suit
Driver Supervision
Logs, software, check-ins, ride-alongs
Indirect losses
Losses resulting from a peril, but not directly caused by it. Consequence of the direct liability losses that occur when a claim is filed against an organization, several other net income losses are possible. Indirect losses may include business disruption, rent insurance, extra expenses, and other consequences that occur over time.
+ to retrospective plan
Lower costs if you don't incur claims/loss
Holistic risk management
Manages risk across all levels and functions within an organization presents a more complete picture of an organization's risk portfolio and profile. Allows for better decisions and improved outcomes for senior management. Also uses available resources as efficiently as possible to maximize outcomes.
Master policy in a controlled master program
Master policy covers all international operations on a blanked basis to prevent a coverage gap
Self contained excess liability
May have unique coverage so gaps won't occur
Scorecard
Measurements against a specific set of objectives.
Separation
Mitigating and retention that physically divides so the asset or activity isn't all impacted at once
Excess of loss application
Mostly liability - per risk excess of loss applies to primarily property insurance
Controlled Master Program
Non-admitted master policy issued in the country in which the insured is domiciled paired with locally admitted policies issued in the foreign countries in which the insured operates.
External influences on risk appetite
Political, legal, and regulatory environment—regulatory conditions such as capital requirements for financial organizations, political risks such as an unstable national government, and antitrust or other legal concerns Expectations of external stakeholders—targets for return on their investments Economic and market forces—the state of the economy and competitive environment
Excess of loss reinsurance
Primary insurer has a stated amount of loss (not %)
Driver Selection
Process: -analyzing tasks to determine the specific job functions and requirements -recruiting applicants: screening/reviewing applications, interviewing, road tests, background checks, physical exams -hiring/onboarding -maintaining files for credentials/licensing
Per risk excess of loss reinsurance covers:
Property insurance and applies separately to each loss occurring to each risk
Insurers will Generally insure...
Pure risk (does or doesn't no speculation), accidental events, loses definite in time/cause/location, large occurrence of insurance need to Pool them together, not same things in the same place (so it isn't catastrophic for the insurance provider), is economically feasible to insure
Facultative Reinsurance
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.
Large deductible similar to SIR (self-insurance retention) in that both:
Require the insured organization to retain a relatively large amount of loss (they're paying more in deductible)
Sarbanes-Oxley Act of 2002
Requires an officer of a reporting organization to certify that controls are in place to ensure the accuracy of the financial information being reported (such as quarterly earnings for public companies) --- strengthens control environment --- can lead to criminal penalties if laws are violated
Reinsurers may transfer liability to:
Retrocessionaires
Leasing
Risk control that allows the property owner to retain risk
Internal influences on risk appetite
Strategic goals—targets for return on capital and growth Risk attitude—whether it's risk averse, conservative, or aggressive Perception of risk—whether risk is perceived as an opportunity or a threat Strength—available capital and other assets, including human resources
Control Environment
The degree of importance a board of directors and management place on their organization's internal control system and their related actions.
Attachment Point
The dollar amount above which the reinsurer responds to losses.
Asset Risk
The risk that an asset's value will be lower than expected Amount of RBC needed to support an insurer's asset risk = multiplying the asset's NAIC Annual Statement value by a factor provided by the NAIC
Risk Treatment
The selection and implementation of actions to help manage or mitigate a risk.
Telematics
The use of technological devices in vehicles with wireless communication and GPS tracking that transmit data to businesses or government agencies; some return information for the driver.
Risk threshold
Total level of uncertainty the org is able to accept
Cut Through Clause
Usually requested when the insurer does not satisfy the financial standards established by the insured organization's lender. The clause provides that in the event of the primary insurer's insolvency, the reinsurer will pay any reinsurance proceeds directly to the designated payee, which could be the insured organization, the lender, or both.
Duration of patent (less than copyright)
Utility - 20 years from application date (17 actual) Design - 14 years (11 actual) Plant - 17 years (14 actual)
Components of a fleet system
Vehicles, cargoes, operators, vehicle maintenance, routes, vehicle schedules (monitoring devices - IOT devices, roads)
Benefit of surplus
Viewed as critical for insurance agencies (ratio of surplus to premiums written)
Eye contact (ethos)
When you're uncertain about appropriate eye contact, shift your vision from the other person's eyes to between the eyes, or to the nose or lower face, and then back again to the eyes
Difference between operational and strategic risk
With operational risks, the focus is often on making sure that things (whether they are products or processes) are done right; with strategic risks, the focus is on doing the right things and making the right decisions to ensure the organization achieves its strategic goals
Torts
Wrongful act or omission that invades a legally protected right (not a crime or contract)
broad form hold harmless agreement
a hold harmless clause under which the indemnitor assumes any and all liability of the indemnitee under specified circumstances, including liability arising out of the indemnitee's sole fault. Particularly with respect to construction contracts, statutes in a number of states restrict the enforceability of broad form hold harmless agreements.
retrospective rating plans (true)
adjusted premium subject to max and min agreed in the policy
Loss Prevention
reduces the frequency of a particular loss
Purpose and operation of self-insurance
losses that are somewhat predictable in total over defined time period
Self-insurance is most appropriate for orgs that have the follow BUT NOT
low predictability of total losses IS: Ability to tolerate risk retention Willingness to devote capital and resources to financing and administration Commitment to risk control
Types of crimes
major (such as murder) or minor (such as a traffic violation). A felony is a major crime involving long-term punishment. A minor crime, or misdemeanor, is punishable by a monetary fine or short-term imprisonment. Summary offenses are crimes that are not felonies or misdemeanors under state law and that usually result in monetary fines rather than imprisonment.
Parametric triggers
measurement that determines the value of an insurance-related capital market product based on a parameter that is not within the control of the organization transferring the risk, such as loss indices or earthquake-severity parameters (so the org transferring the risk doesn't act recklessly since their risk is low)
Pools can help w/ this risk financing goal through economies of scale in administration and purchasing excess insurance or reinsurance
minimizing the costs of risks
Eligibility for a patent
new, useful, and nonobvious [the invention displays a level of innovation or produces results that are unexpected when compared with previous developments in that area (prior art)]
Basel III countercyclical buffer
option for banks in countries that experience excess aggregate credit growth. It enables such banks to preserve a maximum amount of capital as a buffer during these expansionary phases of the financial cycle that can later be used during a downturn, when credit conditions weaken. The aim is to give banks a capital buffer that can absorb losses, enabling them to remain financially healthy and to meet their obligations, even when capital markets decline.
Securitization Model
organization sells income-producing assets to an SPV in exchange for cash - The income-producing assets are no longer owned by the organization but by the SPV to sell to investors - investors purchase the securities for cash and receive a return on their investment commensurate with the risk inherent in the income-producing assets that back the securities, free of the organization's credit risk
Catastrophe Equity Put Option
organization's right to sell equity (its own stock) at a predetermined price in the event of a catastrophic loss
Elements of successful holistic risk management
organization-wide involvement, organizational and departmental structure that facilitates managing risks as a group, policies that cross departmental barriers, Measurements that consider the entire organization, visible upper management engagement, and performance metrics
Fleet safety
policies, procedures, and practices that ensure the safety of people, fleet equipment, and cargo by minimizing risks
Dashboard Reporting
present info as succinctly as possible
Systems to control operational risk
preventive controls detective controls
Risk Control Strategies
promotes consistency in risk-taking and risk-avoidance activities at all levels designed around a framework structured to facilitate understanding, communication, and appropriate action Control measures should be implemented at all levels of the organization and include reporting systems structured to allow senior management to determine whether goals are being met.
Driver Dismissal
protecting the terminated driver's rights and structuring termination meetings to minimize possible retaliation reduces the risk of injury to workers and property damage, which lowers the organization's liability
General Data Protection Regulation
protects personal information for individuals w/in the EU
option - when to sell?
put option - when the strike price is higher than the market price - get the difference (hedging) call option - when you think the stock price will increase above the strike price options trading - buying/selling the above options
Risk appetite measurements
quantitatively (finances) and qualitatively (reputation and management/workforce capabilities) ALSO mgmt can say whether the org is risk adverse (low % of loss) or risk aggressive (higher % of loss - sector that needs a lot of innovation to stay ahead, IE technology product developers)
Risk Financing
refers to techniques that provide for payment of losses after they occur
Gramm-Leach-Bliley Act
regulates how financial institutions handle individuals private information
Covariance
relative association between variables to move in tandem or independently of each other
Vehicle replacement
retire vehicles that cannot be operated safely, are obsolete, or require cost-prohibitive repairs. Depending on business conditions, fleet owners may then replace retired vehicles or simply operate with a smaller fleet.
Difference between risk tolerance and risk appetite
risk appetite as the amount of risk the organization wants to accept to achieve a goal—essentially, it's the target amount of risk that the organization wants to take on. Risk tolerance is broader than that; it's the total amount of risk the organization can accept
Noninsurance transfer where transferor transfers loss exposure to transferee, eliminating the possibility that the transferor will suffer a loss is a noninsurance:
risk control transfer (not loss control mechanism)
Risk Modification
A process to increase likelihood and/or consequences from positive or negative outcome
Self-insurance
Having enough money to cover large losses on their own
2 requirements for trademark
- Be destinctive - Be the first to use it/introduce it to the stream of commerce
4 types of intellectual property protection
1) copyright, 2) intent to trademark, 3) patent, 4) trade secrets
3 criteria of a copyright
1) original work, 2)fixed in a tangible medium of expression that is permanently recorded (paper/videotape/audiotape/digital media), 3)work has some degree of creativity
Group self insurance plan
A group of employers in the same industry that jointly (as a whole) and severally (individually) guarantee payment of workers compensation benefits to the employees of the group's members. A not-for-profit association or corporation is typically formed to which they pay premiums for self-insurance purposes.
protected cell company (PCC)
A corporate entity separated into cells so that each participating company owns an entire cell but only a portion of the overall company
Organization risk taking (after implementation of strategic goals)
A factor in strategic decision making is whether an org has an advantage in controlling the risk w/ a given activity
Hedging
A financial transaction in which one asset is held to offset the risk associated with another asset.
Elements/benefits of effective risk-appetite statements
Articulating the activities the firm is willing to engage in and level of risk it's willing to take on Providing a framework for formulating strategic and tactical business decisions Engaging internal and external stakeholders in a discussion of strategic risk Creating a consistent plan for risk decision making Promoting a shared understanding of risk Limiting excessive risk taking Deciding on appropriate capital and resource allocation Creating a means to measure, monitor, and adjust strategies to account for risk
Berne Convention
Automatic copyright as am original item is created (registering helps enforce, copyright is automatic)
5 common ways risk managers treat risk
Avoidance, modification, transfer, retention, or (for opportunities) exploitation.
Elements of Copyright
Creation/ownership/duration
pool helps w/ law of large numbers
manages uncertainty (doesn't minimize the cost of risk)
Examples of questions that may be used in a PESTLE analysis:
Political—Are trade policies or practices likely to change after an upcoming election? Economic—Will increases in unemployment affect the market for products or services? Sociological—Do the organization's products and services still align with consumer attitudes and expectations? Technological—Will the organization be ready to adapt to and benefit from the use of new technology? Legal—Will the organization need to devote resources to comply with new laws? Environmental—Can the organization continue operations in the case of a severe weather event?
Trade dress
The image and overall appearance ("look and feel") of a product that is protected by trademark law.
Residual Risk
The level of risk remaining after actions are taken to alter the level of risk.
Special purpose vehicle (related to mortgage)
activity of buying a bundle of mortgage loans and then selling to investors an interest in those income-producing assets is performed by an intermediary - uses collateral (collateralize) for securities to be sold to investors - reduces risk of investing in an organization
Reinsurance
an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance
Blockchain
infrastructure upon which smart contracts are built and implemented
4 major classifications of operational risk
people process systems external events
strategic management process
***5 interdependent stages*** developing short- and long-term goals: vision statement/mission statement analyzing internal & external environments: SWOT (strengths/weaknesses = internal, opportunities/threats = external) ALSO PESTLE analysis (political, economic, sociological, technological, legal, and environmental - ID opps/threats in external environment - SWOT each of these categories to go deeper) ALSO Porter's Five Forces Analysis: method of evaluating five forces that affect an organization's competitive environment, including the threat of new entrants to the market, the threat of substitute products or services, the bargaining power of customers, the bargaining power of suppliers, and competition among existing firms. five forces within an organization's competitive environment to analyze how successful an organization, product, or service might be. It's often used to identify opportunities or threats within a SWOT. formulating strategies: 5 - -changes needed to implement the strategy -cost (including the cost of delaying or diverting resources from other projects to pursue the strategy) -overall return on investment -risks involved -risk appetite implementing the strategies: execution - who/what/where/when evaluating the strategies: strategic control, involves monitoring progress toward goals
Contract is enforceable if:
- Agreement (offer and acceptance) - Consideration: each party gives up something of value - money for activity (usually) - Capacity to contract: legal age, sober, and sane - Legal purpose: can't be illegal
Copyright Duration
- As long as the creator is alive + 70 years (after 1978) - Joint: as long as the creators are alive + 70 years after the last person's death - For hire/anonymous works: 95 years from publication or 120 years from creation (whichever is shorter)
Trademark categories
- Fanciful mark: invented word/phrase (pepsi) - Arbitrary mark: common word/phrase that has developed a link to the brand/item (apple) - Suggestive mark: implies certain qualities (bite-no-more bug spray) - Descriptive mark: describes the product (luxury limo service) --- receives the least amount of protection by competitors
Risk control measures for patent loss exposures
- Notice - Licensing agreements - Restrictive covenants - Freedom-to-operate search (reviewing previous to make sure nobody did it already - to protect against willful infringement check w/ an intellectual property attorney and that will protect against willful infringement)
Risk Control for Copyrights
- Notice (watermarking) - Registration (w/in 3 months of publication or before an infringement occurs) - Restrictive covenants (kinda like an NDA, no compete - contract dictating how to use it) - Responses to anticipated defenses (laches - waiting too long to assert infringement -- the infringers can pay to use the intellectual property -- fair use is legal as of 2015) - Licensing agreements (specifies how the property can be used)
Risk Control for Trademarks
- Notice: (R) or TM symbols - Registration: has to be registered and marked - Searches/watches: identify if anyone else has a trademark with the same attributes - Licensing agreements - Restrictive covenants - Enforcement of rights (cease and desist in a timely manner - showing intent to sue if use doesn't discontinue)
3 stages of civil law case
- Preliminary: pleadings and appointments of a hearing judge - Evidence: hearing judge takes evidence and prepares a written summary - Decision: presiding judge decides the case based on the record provided by the hearing judge, counsels' briefs, and arguments
4 classifications of IT operations risks
- Security: data breach could result in unauthorized access to, use of, or alteration of an organization's information. - Availability: Systems could be inaccessible because of a malicious attack; a software failure; or a natural disaster or event, such as a tornado or fire. This period of inaccessibility would include any restoration period. - Performance: systems, applications, or personnel won't perform at the level required to help the organization reach its goals - Compliance: processes for handling data could fail to meet certain regulatory or business insurance policy requirements
Aspects of successful cargo transportation
- Suitable to vehicle (animals, gas, etc) - Proper loading - Safeguards against inherent vice (ability of cargo to destroy itself - glass safety stored, ice cream @ correct temps)
Distinctive trademark attributes (if it is memorable it is distinctive)
- Unique symbol/logo - Fabricated word (Walmart) - Word that is unexpected in context (Payroll Factory) - Fanciful image (Blue Bunny Ice Cream) - Product qualities (SlimFast meal replacement shake) (exception - if the general public knows the company/product for that phrase/word then they can get a trademark - even for something basic like A-1 auto parts, etc)
Vehicle fleet safety/RM
- Using the right vehicle for each task - adhering to safe vehicle-operating practices - performing regular vehicle maintenance - promptly replacing vehicles when necessary IMPORTANT: drivers suitable schedules impact working at a reasonable pace
Modifying consequences of contractual liability
-Select favorable jurisdiction: specifies which state's law will govern the contract's interpretation -include limits of liability: anticipate legal claims and to limit an organization's legal responsibility -include a liquidated damages provision: limits the amount for which one party might otherwise be liable -Include a valuation clause: transportation or bailment of property to specify the valuation of the property in the event that it is lost, stolen, or damaged -Evaluate duty to mitigate: failed to fulfill its duty to mitigate and therefore suffered greater loss than was necessary
advantages of parametric trigger or contracts
-allow coverage for events that may otherwise not be insurable -administrative costs of administering such a policy would either make it too expensive to be worthwhile or simply too cost-prohibitive to even offer -reduced administrative costs could also allow smaller transactions to take place, providing consumers with access to preset policies via apps on their phones or through the internet -provide insurance opportunities to consumers in geographic locations that are too far removed from population centers for traditional insurance methods
How Basel III accomplishes goals
-capital planning -continually monitoring risk exposures and capital needs -establishing procedures to control or mitigate banks' risk exposures and capital positions -reporting requirements It offers recommendations and mandates for banks' boards of directors and senior managers to oversee banking operations (including bank policies, processes, and systems) and day-to-day banking activities as a means to better manage banks' operational risks.
In a majority of countries - legal systems have 2 categories:
-common law -civil law
Types of monetary damages
-compensatory damages: reimburse a victim for actual harm -special damages: a form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages. -general damages: a monetary award to compensate a victim for losses, such as pain and suffering, that does not involve specific, measurable expenses. -noncompensatory damages: (punitive damages/exemplary damages) may exceed the amount necessary to indemnify a party for losses - to change wrong-doing party's behavior -out or court settlement is an option as well
Types of strategic risk factors
-competition and innovation risk: changing software and customers not liking it and switching to another platform, and positive is that customers might like the new operating system and demand increases -liquidity and financial risk: (-)liquidity is low if 2 restaurants in the same city close, (+)increase demand for real estate allows the buildings to be sold if need be -acquisition and economic risk: (-)insurance company can't integrate w/ a new software they bought, (+)if they can integrate they may have lower costs for customers -marketing risk: (-)clothing line isn't popular and won't sell, (+)new customers jump on board -foreign economic risk: (-)new SUV doesn't sell because economy is in a tough spot, (+)more customers buy the brand and customer base expands -procurement risk: (-)new supplier might not deliver on time, (+)lower cost of delivery -regulatory risk: (-)studies may show new medication to be unhealthy, (+)if medication works and they make money they can sustain loss in the future
Modifying consequences of tort liability
-development of defenses -participation of settlement negotiations
+ of Self-Insurance
-direct control over settlement -select own defense attorneys -set own guidelines for settlement -can determine if they defend or not (not purely dependent on economics) so they can protect reputation -forces the org to focus on loss control
Risk control measures for trade secret loss
-disclose info only to employees who need to know info to perform jobs -require sign-in or security measures where the secret info is used -control documentation regarding the secret by using a safe, "confidential" stamp, or burn bag (burn documents that should be kept secret) -require employees to sign a restrictive covenant (NDA or confidentiality agreement)
Metrics to quantify strategic risk
-economic capital: capital required to remain solvent and cover the risk -risk-adjusted return on capital (RAROC): return on investment after accounting for risk - profitability - calculated by: total return - taxes / economic capital -shareholder value added: corp worth to shareholders (indicator of mgmt effectiveness)
3 categories of derivatives
-forwards contract: two parties negotiate in agreement to buy or sell an asset at a specified price in the future - oil prices for the winter or forever stamps -futures contract: exchange-traded forwards contract that is standardized, openly available, and transferable -options: sell at a specific price (strike price) - call option (buy) put option (sell) ---- seller agrees to buy something at a specific price and if the stock price increases they can buy at x (lower than current, agreed upon value) and sell immediately to make the profit between agreed upon price paid/agreed upon and current price -swaps: orgs paying each other for the type of interest the other one has - fixed and floating (they want the other type for some reason - maybe willing to take on risk?)
Advantages of Contingent Capital Arrangements
-funds it makes available to an organization cost less than funds made available by insurance -allow an organization to obtain a capital infusion at a predetermined price -credit risk isn't a thing (as it would be with normal catastrophe financing)
How courts determine trade secret status
-how well is the secret known outside the business -how much of the secret is disclosed to employees -what steps taken to guard -what is the secret's commercial value -how difficult would it be for someone else to acquire/duplicate the secret
Benefit of surplus notes
-increase an insurer's assets without increasing its liabilities -treatment as equity (policyholders' surplus) on an insurer's statutory balance sheet allows an insurer to increase its capacity to sell business -Contingent surplus notes can immediately obtain funds by issuing notes at an agreed-upon rate of interest. An insurer can use the funds to bolster its surplus following a loss
5 widely used tort liability defenses
-legal privilege: when one reason/purpose overrides another (peace overrides privacy, persons safety overrides property safety) -Immunity: shields persons/organizations from liability (children, nonprofits, government agents) -comparative negligence: levels of fault, may result in sharing the financial impact -last clear chance doctrine: when someone had an opportunity to avoid harm but didn't -assumption of risk: when someone takes on the risk willingly
Consequences of legal/regulatory risk
-monetary damages -defense costs -indirect losses -specific performance or injunction
Environments that impact fleet safety
-physical (highways, weather, terrain, communities, etc) -legal (laws, regulations, etc) -economic (changes to budgets, labor union strikes) -competitive (prices may be driven lower which may impact safety/risk)
Treating potential negative aspects of legal and regulatory risk:
-risk avoidance (CVS stopping selling cigarettes) - stopping or never starting -modifying the likelihood of an event (loss prevention) -Modifying the consequences of an event [blanket liability often doesn't hold up in court as the buyer of the ticket didn't get to negotiate the terms - "contracts of adhesion" ---- baseball hitting someone and breaking collarbone when ticket said the stadium isn't liable]
+ to retrospective rating plans
-save money if they're safer/less losses -encourage risk control -financial stability
Vehicle monitoring/tracking technologies:
-stability control systems (automatically braking when rounding corners to keep vehicle safe) -rear-mounted video cameras -Anti-lock braking systems (ABS) -direct tire pressure monitoring system (increases and decreases pressure depending on road conditions) -Satellite communication w/ GPS -Onboard scales -Dish-mounted cameras -Lane departure warning system (LDWS) -Forward collision warning systems (FCWS)
3 ways to provide contingent capital
-standby credit facility -catastrophe equity put option -contingent surplus note
- of self-insurance
-uncertainty of losses -heavy admin load -expenses to run program are tax deductible, but they are often delayed due to litigation/etc -business contracts dictate that insurance has to be purchased for another org, self insurance won't work - tenant required to add landlord for liability for the building occupants - self insurance may not be acceptable by the landlord (wants more stability from a larger insurer)
Modifying likelihood of tort liability
-waivers (waives right of subrogation - process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.) -hold-harmless agreements - contractual provisions by which one party (the indemnitor) agrees to assume the liability of a second party (the indemnitee) ---renters can't hold landlord liable for 3rd party injuries in their rental AND construction contracts stating construction companies can't be held liable for injuries on a property they worked on (unless it was direct) -Exculpatory agreements - releasing someone from liability of injuries for specific acts (horseback riding or skydiving even if negligence is included) -unilateral notices - signs posted may prevent liability and warranties (usually won't hold up in court as the one party didn't get to negotiate)
Prouty's 4 categories of loss frequency
1) Almost nil- extremely unlikely to occur 2) Slight- could occur, but hasn't 3) Moderate- occurs occasionally 4) Definite- occurs regularly
3 types of Excess of Loss
1) Per Risk (each loss/risk is separate), 2) per occurrence (catastrophe protection - super high amount of claims), 3) aggregate excess (covers aggregated losses usually a year
Incorporating risk into strategic planning
1) SWOT and PESTLE together 2) Evaluate plans w/ scenario analysis (worst possible event) and strategy map (visual diagram of plans) 3) determine risk threshold (range or amount of risk that is acceptable), risk appetite (amount of risk they're willing to take on), key risk indicators (KRIs - measure of uncertainty in meeting objectives), and treatment triggers (where they treat and where they don't) --- ALSO KPIs (key performance indicators - measures what has occurred and the progress made toward reaching goal vs KRIs are predictive and measure volatility that can affect whether goals can be achieved) KRIs help keep risk within risk appetite Threholds define boundaries for risk appetite KRIs indicate when the thresholds are, or about to be, breached Treatment trigger levels indicate when an organization must take corrective action to prevent risk-appetite thresholds from being breached
Prouty's 3 categories of loss severity
1) slight- losses that can be retained easily 2) significant- part of the loss must be transferred 3) severe- the organization's survival depends on the transfer of loss
5 phases lifecycle of a fleet
1. Conceptual (evaluate the types of delivery vehicles required, along with possible routes and schedules) 2. Engineering (select reliable delivery vehicles, select and train operators, finalize routes and delivery schedules, plan appropriate vehicle maintenance, and educate operators and others on accident procedures) 3. Production (purchase the delivery fleet vehicles) 4. Operational (implement and monitor measures that control the overall cost of risk (insurance costs, safety measures, and administrative costs) attributable to the organization's fleet operations) 5. Disposal (eliminate old vehicles unable to legally fulfill the purposes and attributes of the fleet because of age, technological obsolescence, or other reasons and replace them with vehicles that better meet the organization's transportation needs; train, retire, or reassign employees no longer qualified to operate the vehicles)
Basel III
A comprehensive set of reform measures by BCBS improving the quality, consistency, and transparency of banks' capital base to help the commercial banking sector better absorb shocks from financial and economic stressors. Including improved risk management and governance, along with proposed measures to increase banks' transparency and disclosures. capital requirement (a surcharge) for large, global, systemically important banks (G-SIBs). If these banks, which are considered too big to fail, are distressed or experience a disorderly failure like that of the 2008 crisis focuses on capital planning, continually monitoring risk exposures and capital needs, establishing procedures to control or mitigate banks' risk exposures and capital positions, and reporting requirements recommendations and mandates for banks' boards of directors and senior managers to oversee banking operations (including bank policies, processes, and systems) and day-to-day banking activities as a means to better manage banks' operational risks require capital distribution and to strengthen capital requirements for credit risk by type of asset. The revised tiers ensure that banks are adequately capitalized through credit risk-adjusted assets both on and off their balance sheets defines categories of capitalization—well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized—and prescribes prompt corrective actions to be taken by the bank and discretionary or mandatory actions to be taken by regulators for institutions that fall under any category other than well capitalized further measures of capital stability in addition to the minimum RBC requirements in the form of two capital surplus buffers: a capital conservation buffer and a countercyclical capital buffer
System safety
A safety engineering technique also used as an approach to accident causation that considers the mutual effects of the interrelated elements of a system on one another throughout the system's life cycle.
Special purpose vehicle
A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them, and then using those assets to collateralize securities that will be sold to investors. (receives cash from an organization in exchange for the promise to pay any losses that occur. The SPV also obtains funds from investors, which are then used to pay for potential losses. The investors will either receive interest on their investments if there are no losses or lose some or all of the investments if losses do occur.)---- generally used for catastrophic insurable risk (hurricanes, earthquakes, etc)
Trade Secret
A formula, device, idea, process, or other information used in a business that gives the owner a competitive advantage in the marketplace. (coke - private and never registered but protected) --- kept confidential by limiting the amount of people that monitor/know the manufacturing process
risk retention group
A group captive formed under the requirements of the Liability Risk Retention Act of 1986 to insure the parent organizations. Can be centered in one place and cover anyone in any state.
association captive
A group captive sponsored by an association.
Umbrella Liability Policy
A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention.
Correlation
A measure of the relationship between two variables. Strength of the relationship -1 to 1, which is the correlation coefficient value.
Patent
A patent is a legal protection and a right granted by the government that gives its owner the ability to control who makes, uses, sells, or imports for sale his or her invention for a limited period
Retrospective rating plan
A rating plan that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience.
Treaty Reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer's individual loss exposures that fall within the treaty are automatically reinsured.
Retrocession
A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire).
Risk Avoidance
A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.
Diversification
A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions
Risk exploitation
A risk management strategy for making a positive uncertainty more likely to occur
The Basel Accords (Basel I)
A set of recommended "best practices" designed to help countries avoid banking and financial crises. The accords emphasize capital requirements, supervisory review, and information disclosure. (after 1988 international bank failures including US savings and loan crisis)
Common Law System
A system of law based on tradition, precedent, and custom. When law courts interpret common law, they do so with regard to these characteristics. The judge interprets the facts of a case, examines precedents (prior judicial rulings in similar cases), and makes a decision based on the facts in the current case. Precedents are guides, not rigid frameworks for all decisions. This system tends to be fact-intensive, relying on the judge's reasoning for a final decision. (England and most of the former British colonial countries, including Australia, Canada, India, and the U.S., use the common law system)
Management Controls
A system of specified standards or objectives against which an organization's management measures performance. (coordinate resource allocation, motivate performance, and measure outcomes. Management controls include things like capital budgeting, expense-variance reviews, and balanced scorecards.)
Internal Controls
A system or process that an organization uses to achieve its operational goals, internal and external financial reporting goals, or legal and regulatory compliance goals. (ensure that an organization's methods, processes, and systems support its objectives)
Per occurrence excess of loss reinsurance
A type of excess of loss reinsurance that applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more of the primary insurer's policies.
Per policy excess of loss reinsurance
A type of excess of loss reinsurance that applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each policy.
Aggregate excess of loss reinsurance
A type of excess of loss reinsurance that covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or as a loss ratio, and that occur over a specified period, usually one year.
Per risk excess of loss reinsurance
A type of excess of loss reinsurance that covers property insurance and that applies separately to each loss occurring to each risk
Catastrophe excess of loss reinsurance
A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event.
agency captive
A type of group captive that is owned by insurance agents or brokers rather than by the organizations insured.
Surplus Share Reinsurance
A type of pro rata reinsurance in which the policies covered are those whose amount of insurance exceeds a stipulated dollar amount, or line.
Quota Share Reinsurance
A type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a FIXED PERCENTAGE.
Pro rata reinsurance
A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses)
Excess of Loss Reinsurance
A type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount
Risk Based Capital (risk capital)
Amount of capital an insurer needs to support its operations, given the insurer's risk characteristics. A method developed by the National Association of Insurance Commissioners (NAIC) that establishes a minimum amount of capital that an insurer needs to support its overall ongoing business operations based on the risk-based capital formula. [capital required for financial cushion against unexpected losses] The level of capital required to provide a cushion against unexpected loss of economic value at a financial institution
Ceding Commission
An amount paid by the reinsurer to the primary insurer to cover part or all of the primary insurer's policy acquisition expenses.
Framework
An approach to project planning and execution in which portions of the project are divided by requirements or problem statements and addressed separately, but in a way that will integrate.
Standby credit facility
An arrangement in which a bank or another financial institution agrees to provide a loan to an organization in the event the organization suffers a loss. -- -interest rate and principal repayment schedule are known in advance, costs a fee paid to the facility (similar to an insurance policy - often used in conjunction w/ insurance) --- set interest rate and length of LOAN
rent-a-captive
An arrangement under which an organization rents capital from a captive, to which it pays premiums and receives reimbursement for its losses.
working cover
An excess of loss reinsurance agreement with a low attachment point (reduce costs) - profitable years will offset the expensive ones
Large deductible plan
An insurance policy with a per occurrence or per accident deductible of $100,000 or more. Insurance pays then the insured pays them back.
Large-line capacity
An insurer's ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide.
Injunction
An order which legally requires an entity/individual from engaging in a particular activity/action
Risk tolerance measurement
Has quantitative attribute (unlike appetite that is qualitative) and has high and low boundaries and treatment triggers that indicate when a corrective action must be taken to prevent risk appetite thresholds from being breached
Contracting for services
Having another organization do the activity that causes risk so they are the ones that absorb that risk liability. (liable for choosing the contractor, liability for basic safety measures, negligence by contractor can be your responsibility)
2 types of risks for an employee falling for a fraudulent email
IT - systems are at risk operational (human element of op risk) - people must click the link
Ethos
credibility
General liability is mainly for bodyily injury and property damage - this provision supports the principle that insurable loss exposure is:
definite --- in time (NOT pure risks)
credit derivatives
derivatives used to reduce a lender's exposure to credit risk by a 3rd party for a fee
single-parent captive, or pure captive
an insurer owned by only one parent, such as a corporation
Decision tree diagram
analyzes the consequences of different decisions
common types of operational controls
approvals and authorizations (preventive) Reconciliations (detective) segregation of duties (preventive) safeguarding assets (both preventive and detective)
Fleets are used for:
assemble people, raw materials, supplies, and other inputs to produce, distribute, and transport goods and services
Basel III capital buffer
build up capital surplus in a buffer account when they are not financially stressed, which can be used to bolster losses the bank incurs when it is financially stressed. Basel III incorporates incentives to encourage financial institutions to develop adequate buffers
Risk Transfer
buying insurance to shift the risk of financial loss to an insurance company - transferring the risk to another party (budgeting for the cost)
Business errors
can be mitigated by errors and omissions (E&O) insurance (and liability insurance) - but rarely provide coverage that don't affect a 3rd party
Layers of legal protection
civil law, criminal law, and regulation
Feedback loop
constantly and consistently monitor risk management process
implied contracts
contract by actions (taking care to repair and you're going to pay for the repair)
limited form of hold harmless agreement
contractor indemnifies only the portion of the claim that they are directly responsible for - building owner has limited transfer of loss so may absorb some of the claims
intermediate form of hold-harmless agreement
contractor will indemnify building owner for claims that come from the contractor's negligence and some of the building owner's negligence
National Association of Insurance Commissioners (NAIC) developed its RBC (risk-based capital) system
determine the minimum amount of capital an insurer needs to support its operations, given the insurer's risk characteristics consider asset risk, underwriting risk, and other risks applicable to the type of insurance RBC formula adjusts the sum of the values assigned to each risk using a statistical covariance technique. The covariance formula accounts for dependencies among the applicable risk factors and avoids unrealistically high capital requirements.
RBC for Insurers Model Act
enables insurance regulators to act before an insurer becomes too financially weak to be rehabilitated. The RBC formula provides an objective test of an insurer's solvency, and related regulatory action is designed to match it. The nondiscretionary operation of the RBC system allows insurers to self-regulate by performing the RBC calculations themselves and then reducing risk or increasing capital before regulatory action is required. It also forces state regulators to take immediate action under a clear mandate to determine whether an insurer can resolve its own financial problems. If it can, the insurer's financial concerns are addressed by the company or its regulators.
3 modes of persuasion
ethos, logos, pathos
derivatives market
financial contract that derives its value from the performance of another asset (commodity maybe) tor that can derive its value from the yields of another asset or level of an index (stock market)
Drivers
fleet safety management also includes human resource functions such as appropriately selecting, training, supervising, and dismissing drivers, as well as monitoring their licensing. Using technology to track their driving behavior and provide feedback allows them to improve and can aid risk managers in decisions regarding driver training, supervision, and possible dismissal.
Credit Risk
form of asset risk - eflects the possibility that the insurer will not be able to collect money owed to it receivables, such as federal income tax recoverables; interest, dividends, and real estate income; receivables from affiliates, subsidiaries, and parents; amounts receivable relating to uninsured accident and health plans; and aggregate write-ins for assets other than invested assets For each asset, the value shown in the NAIC Annual Statement is multiplied by the appropriate RBC factor to determine the required RBC component for credit risk
Action Levels
formula to determine when to take action - no action is required if the RBC is 200 percent or more of the computed minimum. At some levels, the insurer must submit a comprehensive financial plan, and the regulator may need to take action. At the lowest RBC-computed minimum level (between 70 and 100 percent), the insurer is placed under regulatory control
COBIT as both governance and management approaches
governance: ensure that IT doesn't create more risk than the org can tolerate management: balancing the costs of IT-related risks w/ benefits (needs for new systems vs costs)
Layers of liability insurance
helps an insurer avoid shock losses by limiting the amount it would have to pay for claims made against any one of its policyholders. The layered approach also enables an insurer to spread its risks among more policyholders, across more risk classifications, and through more territories.
When to use retrospective rating plan
high frequency and low-to-medium severity losses (workers comp, auto liability, general liability)
vehicle safety equipment
high maneuverability, solid body construction, and highly visible exterior paint (sirens, backup cameras, tie downs) IMPORTANT: lane departure warning system helps prevent rollovers
Prouty Approach
identifies four broad categories of loss frequency and three broad categories of loss severity
Strategic Management
identifying, describing, and continually reviewing business decisions in a way that will propel an organization to perform better - establishes and creates a means to evaluate the decisions and actions that ultimately determine how the organization performs.
How to decide whether to go w/ insurance or contingent capital?
if insurance premium is lower than losses (accurate loss forecasting needed)
Other Costs in Retrospective Plan
insurer overhead and profits, loss adjustment expenses, residual market loadings, and premium taxes
Using patents internationally
inventor needs permission from the United States Patent and Trademark Office (USPTO) to file for a patent in another country. Inventors who violate this rule may forfeit their U.S. patent protection.
Defense costs
investigation, expert witnesses, producing documents, obtaining witnesses, (defendant can be liable for: jury fees, filing fees, premiums on court bonds)
loss limit in retrospective rating plan formula
is applied on an individual loss basis to limit losses included in the formula
What to know when creating an effective rm dashboard
know what their audience's objectives are, what types of decisions they make, and what information is needed to inform those decisions
Parametric Financing Applied to Operational Risk
large financial organizations can manage the operational risks from rogue traders and data breaches by issuing bonds to protect themselves against such self-inflicted wounds. Triggered by events that reach certain thresholds, such as a dollar amount of losses caused by a rogue trader or data breach, the bonds could provide funds needed to indemnify the organization and its customers and pass the risk of such events on to willing investors.
Private international law
laws governing transactions of individuals and companies that cross international borders. Impacted by comity (whether one country will recognize the law from another country) and jurisdiction (whether a court has a right to hear the legal dispute). in personam jurisdiction (over people/entity) and in res jurisdiction (whether they have the jurisdiction to render the judgement or not)
Balancing Risk
less risk than expected in one area may be transferred to another area to keep the overall org's risk appetite in check
Contingent capital agreements
risk financing alternatives to insurance by a standby credit facility before a loss occurs - cost is a commitment fee (based on likelihood of loss, interest rates of alternative investments, and credit risk of org) - investors in contingent capital agreements become creditors of (equity investors) in the org ---usually an option
Duplication
risk retention and modification technique that creates backups of exposure units (duplication/separation/diversification are all techniques) - Creating copies of asset so if the primary asset is threatened the organization will still have the data/use available - good for files/documents
basis risk
risk that the amount the organization receives to offset its losses may be greater than or less than its actual losses (disadvantage of parametric trigger or contract) other disadvantages - loss may be greater than predetermined amount or trigger could be just below the threshold so they have loss but not enough to get a payout
Routes
safe, cost-effective, reliable travel routes are imperative - alternate paths may be needed - not steep grades, not heavy traffic, good cell and radio transmission, good lighting, frequent rest stops
noninsurance transfer for risk control
shifts loss exposures to the transferee to reduce the frequency and/or severity of the transferor's losses arising from the loss exposures
Risk appetite over time
should be shifting (not static) as environment/factors change it should be evaluated
body language
sitting up and leaning slightly toward your audience can convey confidence in your message and interest in those around you
How internal controls start/work
starts with policies and procedures that define employees' responsibilities. Larger organizations often appoint a controller who ensures that effective internal controls and accountability practices are in place. Internal auditors provide independent assurances that controls are in place and functioning as intended.
SWOT uses
strengths can be paired with opportunities to identify areas of competitive advantage, and weaknesses can be paired with threats to identify risks that should be avoided
regulatory capital
the amount of capital that a financial institution must hold because of regulatory requirements (ensure they meet operational losses and honor customer's cash demands)
Underwriting Risk
the risk that premiums are insufficient to cover losses and administrative expenses after taking into account investment income RBC formula applies different factors for each type of insurance to reflect its industry experience (auto = 10% and malpractice = 40%)
express contracts
the terms of the agreement are fully and explicitly stated in words, oral or written (construction bid)
hazard (increase of risk) control
to eliminate or reduce hazards (premises, operations, products, completed operations) - parking lots, building entrances/exits, escalators, elevators, stairways, merchandise displays and counters, and walking surfaces - housekeeping and maintenance is important to keep these places safe
Difference between risk tolerance/capacity and risk appetite
tolerance/capacity = amount of risk an organization CAN handle appetite = amount of risk the org WANTS to take on
nonverbal communication (ethos)
tone of voice, level of eye contact, and body language
Organization can be held legally liable because of one of the following 3 major liability causes of loss:
torts, contracts, and statutes
Fleet managers and technology
training and supervising vehicle operators, identifying unsafe driving behaviors, and implementing appropriate measures to address driver safety deficiencies - done by vehicle monitoring - used to identify areas where drivers need training
noninsurance transfer for risk financing
transfers only the financial consequences of the transferor's loss exposures
Strategic Risk
uncertainty regarding the firm's financial goals and objectives - identify and analyze strategic risks that can affect—positively or negatively—its long-term performance
Modifying likelihood of statutory liability
use experts, legal libraries, trade associations, boards/senior management understand business operations and bylaws/corporate charter, and know securities laws and antitrust laws. Corporate code of conduct can also help statutory liability (follows legal and regulatory environments anywhere that the organization does business)
