Page 18 - RMAI BULLETIN Jan - Mar 2020

RMAI BULLETIN JANUARY TO MARCH 2020

Examples of this type of loss exposure include natural to be set aside for meeting emergencies,
disasters, explosions, fires, law suits and premature individuals and businesses have to maintain a
deaths. larger fund to meet unanticipated loss in the
absenceofinsuranceindustry.
RiskIdentificationTechniquesIncludes: b. Deprivation of certain goods and services:
1. PhysicalInspection, Because of the threat of liability law suits, a
2. CheckLists, number of firms may refrain from producing
certain products. It is estimated that out of
3. OrganizationCharts,
approximately 250 firms around the world which
4. FlowCharts, were producing childhood vaccines, only a few
5. FaultTrees, firmsnowremaininthatbusiness.
6. HazardIndices,
The approaches used for risk identification include use
7. HAZOP(Hazard&OperabilityStudies)
of loss exposure checklists, flow charts, statistical
8. HAZAN(HazardAnalysis). analysis of historical loss data, analysis of financial
statementsandon-siteinspection.
The most important element of and the first step in the
risk management process is the identification of risks The checklists for various important types of loss
and exposures to loss. The second stage involves a exposuresmaybedetailedasbelow:-
systematic and careful analysis of all major and minor I. Propertylossexposures-
potential loss exposures. An essential prerequisite for 1. Building,plants,otherstructure;
a conscious choice of appropriate and efficient
2. Furniture,equipment,supplies;
methods for dealing with losses if they occur is the
3. Electronic data processing (EDP) equipment;
recognition of all sources of possible losses. As is seen
computersoftware;
earlier, a loss exposure is a potential loss that may be
connected with a particular category of risk. As such, 4. Inventory;
the classification of loss exposures is the same as the 5. Accountsreceivable,valuablepapersandrecords;
one adopted for pure risks; that is, losses associated
6. Companyplanes,boats,mobileequipment.
withlife,health,propertyandliabilityrisks.
ii. Liabilitylossexposures-
RiskIdentificationprocess: 1. Defectiveproducts;
The most important element of and the second step in
2. Environmental pollution (land, water, air and
the risk management process is the identification of
noise);
risks and exposures to loss. This involves a systematic
and careful analysis of all major and minor potential 3. Sexual harassment of employees’ gender
loss exposures. An essential prerequisite for a discrimination against employees, wrongful
conscious choice of appropriate and efficient methods termination;
for dealingwith losses if they occur is the recognition of 4. Premisesandgeneralliabilitylossexposures;
all sources of possible losses. As is seen earlier, a loss 5. Liabilityarisingfromcompanyvehicles;
exposure is a potential loss that may be connected with
6. Misuse of the internet and e-mail transmissions,
a particular category of risk. As such, the classification
transmissionofpornographicmaterial;
of loss exposures is the same as the one adopted for
pure risks; that is, losses associated with life, health, 7. Directors’andofficers’liabilitysuits.
propertyandliabilityrisks.
iii. Businessincomelossexposures-
1. Lossofincomefromcoveredloss;
The following categorization of risks that can impinge
on the financial security of an individual or a business 2. Continuingexpensesafteraloss;
entitywillbefounduseful. 3. Extraexpenses;
a. Maintenance of a large Emergency Fund: Once it
4. Contingentbusinessincomelosses.
is agreed that prudence demands that a fund has

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