RISK MANAGEMENT CONCEPT & PHILOSOPHY

MANOJ SAH

RISK MANAGEMENT

India is a religious country believed to be worshipping 33 crs. Gods Its very natural, at times, we become overconfident or complacement. However the fact remains that God help those who help themselves Day by day Risk is becoming increasingly complex. Nature of Risk is changing. Risk may be financial, property, business, environment, social, Natural, Technical, Brand equity/Goodwill, Liability, IT, Bio tech., cloning, Genetic, Medical/Health, Satellite etc.

In the organisation, everybody remains concerned and talk about profit, performance and productivity. We make meticulous plans and talk about vision, mission and goals. In the process, we forget to make provisions for unforeseen and uncertain losses. In spite of best laid plans, practice, protections and precautions, accidents/losses do take place. They are uncertain, unpredictable but inevitable.

* Day by day- Things are becoming increasingly COMPETITIVE, DEMANDING & AGGRESSIVE
* Road ahead is uncertain and unpredictable calls for Prudent Risk management.

Definition Of Risk Management ?

The Identification , Analysis and Economic control of those risks which can threaten the assets, human being or earning capacity of an enterprise.

TYPE OF LOSSES

Financial aspects is necessary to know the various losses that can occur inspite of the fact that sufficient care has been taken, to avoid them. 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, its employees . PERSONNEL LOSSES : injury to or death of employee may involve extra cost by way of compensation PECUNIARY LOSSES : such as - loss of sale, business interruption due to damage, misappropriation or theft of money .

OBJECTIVES

PROTECTION OF THE COMPANYS ASSESTS AND EARNINGS AGAINST LOSS,INCLUDING PROTECTION AGAINST LEGAL LIABILITIES, ALL AT A MINIMUM COST COMMENSURATE WITH SATISFACTORY COVER . THE REAL OBJECTIVE OF RISK MANAGEMENT IS TO REDUCE FEAR OF THE UNKNOWN AND UNEXPECTED EVENTS AND TO CREATE CONFIDENCE IN FUTURE.

Mr. Felix Kloman

MANAGING OF RISK

RISK AVOIDANCE RISK REDUCTION

RISK RETENTION
RISK TRANSFER

WHAT IS RISK ?
* Risk is a chance of loss
* Risk is the possibility of loss * Risk is uncertainty

* Risk is probability of any outcome being different from the one expected.

RISK MANAGEMENT
A systematic way of protecting business resources and income against losses so that the aims of a company can be reached without interruption

WHY RISK MANAGENENT

*High Capital Intensive in nature.
*Risks beyond human control *Element of uncertainty

WHY RISK MANAGEMENT

*Protection & Security for growth.

PLANNING FOR RISK MANAGEMENT

*Risk identification *Risk analysis/measurement *Risk reduction *Risk retention *Risk transfer (by Insurance)

INSURANCE WHAT IS INSURANCE ?

Insurance is a contract whereby in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

METHOD OF INSURANCE
Insurance is a method in which a large number of people exposed to a similar risk make contribution to a common fund out of which the losses suffered by the unfortunate few due to accidental events, are made good. The sharing of risk among large groups of people is the basis of insurance - The losses of an individual are distributed over a group of individuals.

BASIC PRINCIPLES OF INSURANCE

1)Utmost good faith 2)insurable interest

3)Proximate cause. 4)Indemnity

UTMOST GOOD FAITH

Parties to a commercial contract, according to law, are required to observe good faith I.e. the seller cannot mislead the buyer in respect of the transaction. In insurance, the proposer has a legal duty to disclose all material information about the subject matter of insurance to the insurers who do not have this information. Material information is that information which enables to decide a) Whether he will accept the risk and b) If so, at what rate of premium and subject to what terms and conditions

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.

PROXIMATE CLAUSE

CLAIMS ARE PAID BY THE INSURERS, IF THE LOSS PROXIMATELY CAUSED BY A PERIL INSURED AGAINST.

INDEMNITY
Object of insurance to protect the financial interest of the insured in the subject matter of insurance.

-Insured cannot recover more than his financial loss.

Principle of indemnity states that under a policy insurance, the insured is to be placed after a loss in the same financial position in which he was immediately before the loss.

Contd.
Limitation of Insurers 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

INSURANCE COs.
NATIONALED INS.CO. - NICL, UIICL,OIC,NIA. PVT INS.CO 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.

TYPE OF COVERS
CONVENTIONAL COVERS CUSTOMISED COVERS

TARIFF

NON TARIFF i) PACKAGE POLICY ii) SPL.CONT.POLICY (ON FIRST LOSS) ETC.

i) FIRE i)MARINE ii) MBD ii)SPL.CONT. iii) CPM iii) GPAI ETC. iv) MV v) BE vi) EEI vii) IAR ETC. viii) EAR Insu. ix) Public Liability Act policy

FIRE INSURANCE
RISKS COVER
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)

Insurance Trend in NTPC Power Plants

60000
54901

50000
47400 45596 45805

40000
37417

41298 39730

40494

39628

35222 33285 31561

Premium(Rs Lacs) Premium(Rs/MW)

30075

30000

Fire Sum Insured (Rs Cr)

23840 22868 21057 21169

22435
20160

Capacity (MW)

20000 17085

18858

19028

19445

20445

20945

21945

17085 10000 4073

6849 3907 3971 4028 8279 8300

6600 4523

0 97-98 98-99 99-00 00-01 01-02 Financial Year 02-03 03-04 04-05 05-06

Erection All Risks/ Storage Cum Erection Insurance

WHAT IS - EAR INSURANCE

AN ERECTION ALL RISKS INSURANCE IS AN INSURANCE ON PROPERTY AGAINST ACCIDENTS RESULTING IN DAMAGE TO MACHINERY AND STEEL STRUCTURES WHILE IN THE NORMAL COURSE OF ERRECTION OR CONSTRUCTION.

SCOPE OF COVER
Location Risk - Fire, Lighting, 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.

PERIOD OF COVER

The insurance cover commences immediately after the machinery is unloaded at the erection site and continues until testing operation have been completed. The duration of the testing operation is normally limited to four weeks but longer testing can be granted by specific mention on the policy.

EXTENSION OF COVERS

Earthquake- The zones covered under the scope is I & II. The risk for zone III & IV are only covered against extra premium. Secondhand Machinery- Can be covered only against extra premium. Dismantling cover- Can 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

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.

Thank You
MANOJ SAH