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RISK MANAGEMENT

CONCEPT

&PHILOSOPHY



In the organisation, everybody remainsconcerned about

profit, performance and productivity.

talks aboutvision, mission and goals.

In the process, we forget to makeprovisions for unforeseen and

uncertain losses.

RISK MANAGEMENT … as a concept



In spite of best laid plans, practice,

protections and precautions,

accidents/lossesdo take place.

They are uncertain, unpredictable butinevitable.




Day by day

Things are becoming increasinglyCOMPETITIVE, DEMANDING & AGGRESSIVE

Road ahead is uncertain and

unpredictable

Therefore calls forPrudent Risk management.




A systematic way of protecting

business resources and incomeagainst losses so that the aims of a

company can be reached without

interruption




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What Is Risk Management ?

The Identification , Analysis and Economic control ofthose 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 mportant

Business

Risks

Exposures

Risk exists whenever the future is unknown.

fire

floodaccident

lightning

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.



TYPE OF LOSSES

PROPERTY

LIABILITYPERSONNEL LOSSES

PECUNIARY LOSSES

It is necessary to know the Financial aspects of variouslosses that can occur inspite of the fact that

sufficient care has been taken




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Econom ic cost of r isk

Property losses

Liability losses

Personnel losses

Costs of Unexpected losses

Costs of Uncertainty itself



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 .



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 TYPE OF LOSSES



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

AGAINSTLOSSes , Including PROTECTION against LEGAL LIABILITIES,

AT A MINIMUM COST ( Premium)

COMMENSURATE WITH SATISFACTORY COVER .

RISK MANAGEMENT … as a concept OBJECTIVES



High Capital Intensive in nature.

Risks beyond human control

Element of uncertainty

Protection & Security for growth.


WHY



Risk identification

Risk Avoidance

Risk Reduction

Risk Retention

Risk analysis / measurement

Risk transfer (by Insurance)


Managing & Risk Planning



12/20/2013 16

RISK MANAGEMENT PROCESS

IS THERE A RISK

HAS IT BEEN MEASURED

IS IT SIGNIFICANT

ANALYSE RISK

CAN IT BE AVOIDED OR ELIMINATED

CAN IT BE REDUCED

IS RESIDUAL RISK SIGNIFICANT

IS IT A CATASTROPE RISK

CAN IT BE RETAINED

TRANSFER

INSURE OTHER

YES

YES

YES

NO

YES

YES

NO

NO

NONO

NO

DISREGARD

YES

AVOID / ELEMINATE

NONO

DISREGARD

YES YES

RETAIN RISK

Identification

Evaluation

Control

Financing



WHAT IS INSURANCE

?

??

???


Insurance



Insurance is a contractwhereby

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.


Insurance



Utmost good faith

Insurable interest

Proximate cause.

Indemnity


Basic Principles of Insurance



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



Utmost Good faith



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.



Insurable Intrest



CLAIMS ARE PAID BY THE INSURERS,

If the LOSS is

PROXIMATELY CAUSED

BY A PERIL

INSURED AGAINST.



Proximate Cause



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



Indemnity



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.


the Insurer … ????



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FIRE,EXPLOSION

MACHINERY BREAKDOWN

ELECTRICAL/

ELECTRONIC

DAMAGE

MALICIOUS

DAMAGE

/ ARSON

NEGLIGENCE OF EMPLOYEES

TRANSPORTATION DAMAGE

ACCIDENTS

STRIKE

POLLUTION

EFFECTS OF LIGHTININGS

OR FIRES SPREADING

FROM NEIGBOURHOODINSOLVENCY OF CLIENT

DEFECTIVE

PRODUCT

THIRD PART

CLAIMS

IMPACT OF VEHICLES /

AIRCRAFT

EFFECTS OF INTERNAL FIRE / EXPLOSION

NATURAL PERILS

(STORM,EARTHQUAKE,….)


the Perils



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) MVv) BE

vi) EEI

vii) IAR ETC.

viii) EAR Insu.

ix) Public Liability Act policy


the Type of Covers



Policy Sum Insured (Cr.)Premium (`

MEGA Risk Package

Policy

AR- 126668.9 Cr.

MBD-95001.68 Cr.

Terrorism-126668.9 Cr.

70,44,47,070.00

CPM Package Policy AR- 2297.37 Cr.

Terrorism- 6047.32 Cr.

21,08,46,000.00

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

Public Liability Ins. Act

Policy (PLIA)

55152 Cr. 3,01,308.00

Group Personal Ins. Act

Policy (GPAI)

5661.69 Cr. 4,24,51,206


the Operating Policies



Policy Sum Insured (Cr.) Premium (`

Doctors Liability Policy 0.2 Cr. 56,452.00

Fire Policy for EOC,

R&D, Satellite Earth

Station, NFL & PMI

Fire- 136.47 Cr.

Burglary- 52.16 Cr.

1,07,583.00

Laptop/ Notebook Policyat EOC 0.36 Cr. 21,786.00

Laptop/ Notebook Policy

at SCOPE

0.63 Cr. 24,174.00

Contigency Insurance of

Cenpeep & R&D Eqpts.

17.87 Cr. 1,77,452.00

Insurance of Office

Assets at SCOPE, AGV,

MOP, Neeti Bagh

17.22 Cr. 14,919.00


the Operating Policies … contd.



All operating power stations shall be insured on reinstatement basisunder standard fire & special perils policy covering the following risks.

a) Fire

b) Lightening

c) Explosion /Imp losion

d) Airc rafts Damage

e) Imp act Damage

f ) Subsidence and landsl ide including Rock sl ide

g) Burst ing and/or over-f lowing of water tanks, apparatus and

Pipes

h) Missi le test ing op erat ions.

i ) Leakage from Automat ic s pr ink ler insta l lat ions. j) Bush Fire

k) Riot, str ik e and Malicio us Damage (option al)

l ) Storm cyclon e, Typho on, Tempest, Hurr icane, Temp est Flood

and Inun dat ion (opt ional)

FIRE INSURANCE … Risk covers



PERIOD OF COVER

The insurance cover commences

From mid night of the day premium is paid.

&

The Period of insurance is normally one year



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 ofelectricity 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.


the Scope of Covers



EXTENSION OF COVERS

Earthquake- The zones covered under the scopeis III & IV. The risk for zone I & II are only coveredagainst extra premium.

Secondhand Machinery- Can be covered onlyagainst extra premium.

Dismantling cover- an appropriate cover can beobtained against additional premium as per tariff.

Coverage for removal of debris third party liabilityowners 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 againstextra 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.



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Upgrading Crisis Management

Integrated Risk Management - Corporate Cultu re

Implementation

Hardware

Software

Interactive Supplement

Interlock

Diagnosis system

On line monitoring

Detection & Suppression system, etc

Safety Organization

Inspection & Maintenance

Crisis Management system, etc

Corporate Goal

Priority

Philosophy, etc



35

Function & Role of Risk management

Optimize insurance

program

Risk Management

Brand image

NTPC

Risk improvement/

Loss control



Thank You

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