Dr. James Kallman, ARM 6-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company

Dr. James Kallman, ARM 6-1

AdvancedPowerPointPresentation

©2009 The National Underwriter Company

Dr. James Kallman, ARM 6-2

This Advanced PowerPoint Presentation accompanies the “Tools & Techniques of Risk Management & Insurance” textbook. Each of the 28 chapters in the textbook are presented here in the following sections:

OutlineKey conceptsMajor sectionsChapter summary

©2009 The National Underwriter Company

©2009 The National Underwriter Company Dr. James Kallman, ARM 6-3

Contents

Techniques of Risk Management & InsuranceCh 1 Introduction to Traditional Risk Management……………1-5

Ch 2 Enterprise Risk Management…………………………….2-1

Ch 3 Risk Assessment: Identification…………………………..3-1

Ch 4 Risk Assessment: Quantification…………………………4-1

Ch 5 Overview of Risk Treatment Alternatives………………. 5-1

Ch 6 Non-insurance Transfer of Risk…………………………. 6-1

Ch 7 Insurance as a Risk Transfer Mechanism……………….7-1

Ch 8 Overview of Alternative Risk Transfer Techniques……..8-1

Ch 9 Global Risk Management…………………………………9-1

Ch 10 Loss Control Techniques………………………………..10-1

Ch 11 Emergency Response Planning………………………..11-1

Ch 12 Business Continuity Planning…………………………..12-1

Ch 13 Claims Management……………………………………..13-1

Ch 14 Monitoring Claims for Financial Accuracy……………..14-1

Ch 15 Insurance Companies and Risk Management………..15-1

Ch 16 Working with an Agent or Broker……………………….16-1


Contents

Tools of Risk Management & Insurance

Ch 17 Commercial General Liability Insurance……………….17-1Ch 18 The Workers’ Compensation System………………….18-1Ch 19 Commercial Property Insurance………………………..19-1Ch 20 Directors and Officers’ Liability Insurance……………..20-1Ch 21 Employment-Related Practices Liability Insurance…..21-1Ch 22 Business Automobile Insurance………………………..22-1Ch 23 Crime Insurance………………………………………….23-1Ch 24 Capital Markets Risk Transfer Tools…………………..24-1Ch 25 Loss Control Tools……………………………………….25-1Ch 26 The Certificate of Insurance…………………………….26-1Ch 27 Surety Bonds……………………………………………..27-1Ch 28 Claim Reviews……………………………………………28-1


Chapter 6Noninsurance Transfer of Risk

Outline• What is it?

• Before-Loss Transfers

• After-Loss Transfers

• Steps to Implement

• Advantages and Disadvantages

• Time and Cash Commitment

• Chapter Summary



What is it?• Defined: transferring exposures or the financing of risk to a

party other than an insurer

• Loss may occur at any time

•Before loss transfers: purpose is loss prevention

•After loss transfers: purpose is loss reduction

• Decision to implement a non-insurance transfer of risk should be based on goals and capabilities



Before-Loss Transfers• Examples

• Incorporation

• Leases

• Sub-contracts

• Surety bonds

• Waivers

• Maintenance agreements

• Licensing



Before-Loss Transfers

Incorporation

• Creating a legal entity to whom the risk is transferred

• Protects individual assets to the extent invested in the corporation

• Corporation pays tax for this right of limited personal liability

• Other forms:

• Limited Liability Corporation (LLC)

Supplement

• Society is the transferee who accepts the risk from the corporation’s

owner




Leases• Defined: A contract in which one party grants another the right to possess some item

• Property: In a sale and lease-back, lessee transfers risk to new owner (lessor)

• Workers: Lessee attempts to transfer workers’ compensation and third party liability risks to lessor.

• Transfers may fail: depends on strength of contract




Sub-contracts• Defined: Agreement that transfers the work and risk to a third party

• Examples of risks:

• Workers’ compensation risks

• Public liability risks

• Owners’ construction risks




Surety Bonds• Defined

• Agreement that transfers the risk to a third party for one party’s

responsibility to a second party

• Parties to a surety bond:

• Principal – party responsible to the obligee

• Surety – assures that principal will fulfill responsibility

• Obligee – receives benefits of principal’s and surety’s promise

Guaranty – Guarantor assumes risk upon default of principal

Examples Bid bonds Performance bonds Maintenance bond Completion bond




Supplement

• Bonds not related to financial institution transactions

• Fidelity bonds – protect the employer from the costs of

financials losses caused by the dishonest acts of employees

• Surety bonds

• commercial bonds – contract bonds, license, lost securities

• public bonds – public official, permit, judicial, fiduciary




Waivers• Defined: Intentional and voluntary relinquishment of a right, especially the right to sue.

• Purpose: Facilitates business deals by transferring risk from one party to another.

• Example: Subrogation




Maintenance agreements

• Defined: Agreement to maintain a premises

• Purpose: Transfers risks surrounding maintenance services

Licensing• Defined: Allowing one party to engage in an otherwise prohibited

activity

•Purpose: Transfers risk from licensor to licensee

• Example: Franchise license – transfers risk to fanchisee



After-Loss Transfers• Purpose: transfer the costs of paying for losses that occur

• Examples: hold-harmless, indemnification, loss sharing

• Hold harmless agreement

• An contract in which one party agrees not to sue a second party if the first party is sued by a third party.

• May be limited to vicarious liability

• May be limited to joint liability

• Indemnification

• One party agrees to indemnify a second if the second is held responsible for damages to a third party

• Loss sharing agreement

• Losses are shared among signatories to the agreement

• Examples: condominium associations



After-Loss TransfersSupplement

• Hold harmless agreements and indemnity clauses

• Attorneys often combine the two and concepts have blurred

• Understand subtle but important differences

• Risk Managers should tailor transfers to their benefit

•



Steps to Implement

• Look at all loss exposures

• Decide which to keep and to transfer

• Decide on insurance or non-insurance transfer

• Use attorneys to draft contracts

• Monitor results of contract


Chapter 6Non-insurance Transfer of Risk

Advantages and DisadvantagesAdvantages

+ transfer of worry

+ Retention of resources

+ Certain payment in exchange for uncertain payment

+ No additional cost if loss occurs

+ No additional impact on balance sheet

+ May be seen as prudent business decision in markets

Disadvantages

– Time and effort to identify risks to transfer

– Lose control over exposure unit

– Transfers may be deemed invalid by courts


Chapter 6Noninsurance Transfer of Risk Time and Cash Commitment

• A commitment of time and cash is necessary to ensure the non-insurance transfer is it legal and enforceable.

• Every level of management must be committed to the transfer

• Use an attorney to facilitate these legal documents



Chapter Summary• What is it? Transferring before and after loss exposures to another

party other than an insurer

• Before-Loss Transfers Agreements to prevent losses

Examples: incorporation, leases, subcontracts, surety bonds, waivers, maintenance agreements, & licensing

• After-Loss Transfers Agreements to mitigate losses

Examples: hold harmless, indemnity, & loss sharing

• Steps to Implement: identify exposures, decide which to transfer, decide on insurance or non-insurance transfers, let

attorneys draft contracts, monitor results

• Advantages and Disadvantages+ transfers worry, retains resources, certain payment, no impact on balance sheet, seen as prudent business decision in markets- Requires time and effort, lose control, court interpretations

• Time and Cash Commitment

Documents

Dr. James Kallman, ARM 6-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company