RISK MANAGEMENT

CONCEPT
&
PHILOSOPHY
RISK MANAGEMENT … as a concept

In the organisation, everybody remains

concerned about
profit, performance and productivity.
talks about
vision, mission and goals.

In the process, we forget to make

provisions for unforeseen and
uncertain losses.
RISK MANAGEMENT … as a concept

In spite of best laid plans, practice,

protections and precautions,
accidents/losses
do take place.

They are uncertain, unpredictable but

inevitable.
RISK MANAGEMENT … as a concept

Day by day
Things are becoming increasingly
COMPETITIVE, DEMANDING & AGGRESSIVE

Road ahead is uncertain and

unpredictable
Therefore calls for
Prudent Risk management.
RISK MANAGEMENT … as a concept

A systematic way of protecting

business resources and income
against losses so that the aims of a
company can be reached without
interruption
What Is Risk Management ?
The Identification , Analysis and Economic control of those
risks which can threaten the assets, human being or
earning capacity of an enterprise.

“The real objective of Risk Management is to reduce

fear of the unknown and unexpected events and to
create confidence in future.”

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Why Risk Management is Important

 Risk exists whenever the future is unknown.

fire
Risks
lightning
Business
accident flood

Exposures

Risk Management
Planning organizing & controlling the activities of a firm to efficiently
minimize the adverse impact of risks on the achievement of the company’s
goals.
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 RISK MANAGEMENT … as a concept

TYPE OF LOSSES

PROPERTY
LIABILITY
PERSONNEL LOSSES
PECUNIARY LOSSES
It is necessary to know the Financial aspects of various
losses that can occur inspite of the fact that
sufficient care has been taken
Economic cost of risk

Property losses

Costs of Unexpected losses

Liability losses

Costs of Uncertainty itself

Personnel losses

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RISK MANAGEMENT … as a concept
TYPE OF LOSSES

PROPERTY
damage or loss resulting from
fire, explosion, flood, theft or any other peril.

LIABILITY
for injury to third party
damage to their property caused by negligence
Or
other tortuous act of the firm
Or
its employees .
RISK MANAGEMENT … as a concept
TYPE OF LOSSES

PERSONNEL LOSSES
injury or death of employee
and may
involve extra cost by way of compensation

PECUNIARY LOSSES
such as
interruption due to damage, loss of sale, business
misappropriation or theft of money .
RISK MANAGEMENT … as a concept
OBJECTIVES

THE REAL OBJECTIVE OF RISK MANAGEMENT

IS TO REDUCE FEAR OF THE UNKNOWN
&
UNEXPECTED EVENTS
&
TO CREATE CONFIDENCE IN FUTURE

PROTECTION OF THE COMPANY’S ASSESTS AND EARNINGS

AGAINST
LOSSes , Including PROTECTION against LEGAL LIABILITIES,
AT A MINIMUM COST ( Premium)
COMMENSURATE WITH SATISFACTORY COVER .
RISK MANAGEMENT … as a concept

WHY

High Capital Intensive in nature.

Risks beyond human control

Element of uncertainty

Protection & Security for growth.

RISK MANAGEMENT … as a concept

Managing & Risk Planning

Risk identification
Risk Avoidance
Risk Reduction
Risk Retention
Risk analysis / measurement
Risk transfer (by Insurance)
 RISK MANAGEMENT PROCESS
IS THERE A RISK
Identification
YES
NO NO
HAS IT BEEN MEASURED ANALYSE RISK

Evaluation YES

IS IT SIGNIFICANT

NO YES

DISREGARD CAN IT BE AVOIDED OR ELIMINATED

NO
YES
Control
CAN IT BE REDUCED
AVOID / ELEMINATE
YES

IS RESIDUAL RISK SIGNIFICANT

NO YES NO

IS IT A CATASTROPE RISK DISREGARD

NO
CAN IT BE RETAINED
YES
YES
NO
Financing
TRANSFER
RETAIN RISK
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INSURE OTHER
RISK MANAGEMENT … as a concept

Insurance

WHAT IS INSURANCE
?
??
???
RISK MANAGEMENT … as a concept
Insurance
Insurance is a contract
whereby
in return for the payment of premium
by the insured ( the Owner),
the insurers ( Company)
pay the financial losses suffered by the
insured
as a result of the
occurrence of unforeseen events.
RISK MANAGEMENT … as a concept
Basic Principles of Insurance

Utmost good faith

Insurable interest

Proximate cause.

Indemnity
RISK MANAGEMENT … as a concept
Basic Principles of Insurance
Utmost Good faith
Both the Insured ( owner ) & the Insurer ( the Insurance company) are
Parties to the contract, and are required to observe good faith in
respect of the transaction.
the seller.. insurer cannot mislead the buyer .. insured.

the Owner .proposer has a legal duty to disclose all Material Information
about the subject matter of insurance to the insurers.. Company

Material information …. enables to insurer to decide

a) Whether they will accept the risk, &
b) If so, at what rate of premium, &
c) Subject to what terms and conditions
RISK MANAGEMENT … as a concept
Basic Principles of Insurance
Insurable Interest
Insurable interest… The owner of a property
has a right to effect insurance on the property
if he is likely to suffer financially
when the property is lost or damaged
to accident.
This is a legal right which is called insurable interest.

Without insurable interest, the contract of insurance will be void.

RISK MANAGEMENT … as a concept
Basic Principles of Insurance
Proximate Cause

CLAIMS ARE PAID BY THE INSURERS,

If the LOSS is
PROXIMATELY CAUSED
BY A PERIL
INSURED AGAINST.
RISK MANAGEMENT … as a concept
Basic Principles of Insurance
Indemnity
Principle of indemnity states that under a policy of insurance,
the insured after a loss is to be placed
in the same financial position
in which he was immediately before the occurrence of loss.

Insured cannot recover more than his financial loss.

Object of insurance is to protect the financial interest of the insured

Limitation of Insurer’s liability

a) If sum insured is less than the measure of indemnity, only sum insured is payable.

b) Property insurances-Condition of average –If there is under insurance only

proportionate value is payable.

C) Excess clauses
RISK MANAGEMENT … as a concept
the Insurer … ????
In Public Sector there are two Insurance Companies
 L I C …. Life Insurance Company …….. Deals with Life Policy
 GIC … General Insurance Company ……. Deals with Assests & Properties
 NICL…. National Insurance Co.
 UIIC….. United India Insurance Co.
 OIC …… Oriental Insurance Co.
 NIAC ….. New India Assurance Co.

In Private Sector major names are

 IFFCO-TOKIO GEN. INS. CO.
 BAJAJ ALLIANZ GEN INS. CO.
 RELIANCE GEN. INS.CO.LTD.
 ICICI LOMB. GEN. INS.CO.LTD.
 TATA AIG GEN. INS.CO.LTD.
 ROYAL SUNDARAM INS CO.LTD.
 CHOLAMANDALAM MS GEN.CO.LTD
 HDFC CHUBB. GEN.INS CO.LTD.
 RISK MANAGEMENT … as a concept
the Perils EFFECTS OF INTERNAL FIRE / EXPLOSION

NATURAL PERILS
IMPACT OF VEHICLES /
(STORM,EARTHQUAKE,….)
AIRCRAFT FIRE,EXPLOSION
MACHINERY BREAKDOWN
ELECTRICAL/ MALICIOUS
ELECTRONIC DAMAGE
THIRD PART DEFECTIVE
DAMAGE / ARSON
CLAIMS NEGLIGENCE OF EMPLOYEES PRODUCT
TRANSPORTATION DAMAGE

ACCIDENTS

STRIKE

EFFECTS OF LIGHTININGS
OR FIRES SPREADING
INSOLVENCY OF CLIENT
FROM NEIGBOURHOOD POLLUTION
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RISK MANAGEMENT … as a concept
the Type of Covers

CONVENTIONAL COVERS CUSTOMISED COVERS

TARIFF NON TARIFF

i) FIRE i)MARINE i) PACKAGE POLICY

ii) MBD ii)SPL.CONT. ii) SPL.CONT.POLICY
iii) CPM iii) GPAI ETC. (ON FIRST LOSS) ETC.
iv) MV
v) BE
vi) EEI
vii) IAR ETC.
viii) EAR Insu.
ix) Public Liability Act policy
RISK MANAGEMENT … as a concept
the Operating Policies
Policy Sum Insured (Cr.) Premium (`)

MEGA Risk Package AR- 126668.9 Cr. 70,44,47,070.00

Policy MBD-95001.68 Cr.
Terrorism-126668.9 Cr.

CPM Package Policy AR- 2297.37 Cr. 21,08,46,000.00

Terrorism- 6047.32 Cr.

D&O Liability Ins. Policy 500 Cr. 56,52,875.00

Public Liability Ins. Act 55152 Cr. 3,01,308.00

Policy (PLIA)

Group Personal Ins. Act 5661.69 Cr. 4,24,51,206

Policy (GPAI)
RISK MANAGEMENT … as a concept
the Operating Policies … contd.
Policy Sum Insured (Cr.) Premium (`)
Doctors Liability Policy 0.2 Cr. 56,452.00
Fire Policy for EOC, Fire- 136.47 Cr. 1,07,583.00
R&D, Satellite Earth Burglary- 52.16 Cr.
Station, NFL & PMI
Laptop/ Notebook Policy 0.36 Cr. 21,786.00
at EOC
Laptop/ Notebook Policy 0.63 Cr. 24,174.00
at SCOPE
Contigency Insurance of 17.87 Cr. 1,77,452.00
Cenpeep & R&D Eqpts.

Insurance of Office 17.22 Cr. 14,919.00

Assets at SCOPE, AGV,
MOP, Neeti Bagh
FIRE INSURANCE … Risk covers

All operating power stations shall be insured on reinstatement basis

under standard fire & special perils policy covering the following risks.

 a) Fire
 b) Lightening
 c) Explosion/Implosion
 d) Aircrafts Damage
 e) Impact Damage
 f) Subsidence and landslide including Rock slide
 g) Bursting and/or over-flowing of water tanks, apparatus and
 Pipes
 h) Missile testing operations.
 i) Leakage from Automatic sprinkler installations.
 j) Bush Fire
 k) Riot, strike and Malicious Damage (optional)
 l) Storm cyclone, Typhoon, Tempest, Hurricane, Tempest Flood
 and Inundation (optional)
PERIOD OF COVER

The insurance cover commences

From mid night of the day premium is paid.
&
The Period of insurance is normally one year
RISK MANAGEMENT … as a concept
the Scope of Covers
 Location Risk - Fire, Lightning, Theft & Burglary.
 Handling Risk - Impact from falling objects, collision
failure of chains or tackles.
* Operation Risks- Failure of Safety device, leakage of
electricity short circuit explosion etc.
*Risk of human - Carelessness, negligence, faults in
element erection, malicious damages, strikes,
& riots.
*Acts of God - Storm from hurricanes, flood, landslide,
rocks slide earthquake etc.
 EXTENSION OF COVERS

 Earthquake- The zones covered under the scope

is III & IV. The risk for zone I & II are only covered
against extra premium.
 Secondhand Machinery- Can be covered only
against extra premium.
 Dismantling cover- an appropriate cover can be
obtained against additional premium as per tariff.
 Coverage for removal of debris third party liability
owners surrounding property- Can be obtained by
paying additional premium.
 Marine cover- The overseas as well as inland
transit portion of the risk can be covered against
extra premium.
EXCLUSIONS .. On package to package basis

 Loss of Damages due to faulty designs, defective

materials, bad workmanship.
 Manufacturing Defects- Being not related to erection
work..
 Loss or damages to erection machinery and equipment
due to mechanical/electrical breakdown.
 Loss or damages due to willful act or negligence of the
insured or his representatives.
 Loss or damages due to nuclear reaction, radiation.
 Loss due to normal wear and tear.
Upgrading Crisis Management
Integrated Risk Management - Corporate Culture

Corporate Goal
Implementation Priority
Philosophy, etc

Interactive Supplement
Hardware Software

Interlock Safety Organization

Diagnosis system Inspection & Maintenance
On line monitoring Crisis Management system, etc
Detection & Suppression system, etc 34
Function & Role of Risk management

Brand image

NTPC

Risk improvement/
Loss control

Risk Management Optimize insurance

program

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Thank You