Page 24 - Life Insurance Today July - December 2020

develop a business continuity plan. Business continuity is 3. Company borrowing requirements - the impact of
about looking at 'what if' scenarios, for example, what if some strategies could severely impact on the funds
the country was affected by flu pandemic or a terrorist required from other financial institutions and/or
threat? Have we got a contingency plan that will ensure shareholders.
that the business will continue to function efficiently with
4. Financial ratio analysis - liquidity, asset management,
little or no disruption to staff, customers and suppliers? At and similar checks on organizations can be usefully
a high level, the business will need to establish a key skills undertaken. It can be said that a company should know
database so that individuals are identified within the
in detail about its own areas, however, key customers
organization that can provide cover across the critical and suppliers should also be considered. The effect of
business functions. a key supplier or customer going out of business could
be a real problem when the company is stretching itself
This information will need to be circulated internally. The
financially.
firm will also need to re-evaluate their home and flexible
5. Currency analysis - this is important for international
working policies to ensure that employees can connect to
organizations as a major shift in currencies could quickly
the office from home so that the business is able to
wipe out the profitability of an overseas strategy
maintain critical cover for the vital operations. There will
option.
need to be company-wide access, to the web, audio and
data conferencing services. These measures will ensure that 6. Sensitivity analysis - this is not only useful but is
there is a seamless interaction between the office, its staff, regarded as a part of basic strategy evaluation. It
suppliers and customers. The firm also needs to liaise with explores the 'What if?' questions for their impact on
key customers and suppliers to ensure that any contingency the strategy under investigation. The basic
plans are dovetailed and that in the event of a disaster all assumptions behind each option, for example, pricing,
parties understand exactly who and how key personnel can growth, currency fluctuations etc. are varied and the
be contacted. impact is measured a return on capital employed, cash
and other business objectives. The results of all
For each risk identified, it is necessary to decide on a course sensitivity analyses can provide those selecting the
of action. Here a business can accept it, transfer it, reduce strategies with a useful estimate of the risks involved.
it or take steps to avoid it altogether. Insurance, financial
derivatives and outsourcing are ways of transferring risk. Insurance Company's Governance and
A business can reduce or avoid risk by reducing its exposure Supervision Requirements - Risk
or pulling out of a particular market. However, what is
equally important is to make sure that the cost of action is Appraisal Framework:
not going to be higher than the cost of the risk itself. For Insurers all being part of a corporate governance process
most strategy proposals it is important to undertake some the regulatory risks that the IRDAI is concerned with; they
form of analysis of the financial risks involved in the strategy may be likely to be disturbed / distressed with:-
options. A number of types of analysis can be undertaken 1. Financial failure;
as comprehensive as stated below: 2. Misconduct;
1. Cash flow analysis - this analysis is essential. A business
3. Consumer understanding;
can report good levels of profitability at the same time
as going bankrupt through lack of cash. 4. Fraud or dishonesty;

2. Break-even analysis - this is also a useful approach. It 5. Market abuse;
calculates the volume sales of the business required to 6. Money laundering;
recover the initial investment in the business. Here the
7. Market quality.
important point is to explore whether this volume is
reasonable or not. The firm risk assessment framework involves a series of

"The key to keeping quality people around you is to become a person of quality yourself"

24 July - December 2020 Life Insurance Today