Clean. Simple. 100% Finance.

Posts Tagged ‘Stakeholders’

Owner of my own Risk – Me or others ?

In Banking, Finance, Insurance, Risk Management on February 25, 2013 at 8:11 am

When an individual see the Risk – it looks 4 letter words. It is well said “This will not happen to me”, it is unusual not to avoid it. Actually what is the risk? It is a threat, loss of opportunity, unexpected happening of loss. Who is the owner of the risk – individuals themselves? It is the duty of risk owner is to prevent, reduce, transfer and control the risk.

 

It is just a Four letter word – RISK

Corporates also own the risk; risk manager owns the risk of each department. He/she may set procedures/systems to prevent/reduce the risk, he may transfer the risk to the insurance companies. Insurance companies owns the risk of various corporates and individuals but here the system works little different. Although insurance companies manage the risk however the risk lies in the hands of insured, It is also in the hand of GOD which can be seen any time in floods, earthquake. Its invisible based on set of calculations and predictions.

These insurance companies retain certain part of the risk in their hand and transfer the risk to the Reinsurance companies. Now situation changes dramatically – Reinsurance companies accepts the risk of same individuals/corporates from Insurance companies without knowing who actually they are, only based on set of terms and conditions and documentation submitted by insurance companies. The ownership of the risk is still in the hands of insured.

The reinsurance companies transfers this risk to Retrocession companies who practically don’t know the country of origin of the insured at the time of acceptance of risk, only a set of group risk based on certain conditions are accepted. The ownership does not change hands, insured still can increase or reduce own risk. Finally the set of risk reached through derivative market eg; CAT bond to the public. Individual own their own risk. “its better not to avoid risk rather deal with that”

Advertisements

Who are the parties affected by Risk in the organization?

In Risk Management on May 3, 2012 at 7:51 am

In every organization from top to bottom, senior to junior, creditor to customer every body is affected by risk.  Example – Satyam Computers, the liability arise for auditors to pay for misleading financial reports which ultimately affected whole organization and various parties involved with organization at different levels and overall affect country risk as well. The parties who affect insurance contract are –

  • Employees – Employees of the organization are affected in many ways. If a risk of fire arises then they need to safeguard the personal property, organizational property and liability risk. They provide information to external agencies. Daily wagers loose their jobs. Environment, pollution norms, safety norms and other regulatory guidelines are taken into consideration by employees.
  • Suppliers – Suppliers are affected when the supplies are suddenly stopped. Example – Due to fire, factory close down for 2 months. Therefore, supplies are closed down for 2 months.
  • Customers and other recipient of services – Customers are directly affected from the risk arise out of the organization. In the above example, the customers will not get the products from the company for next 2 months which will create shortage of the good.
  • Distributors –   Distributors face market competition and deals with retailers for product penetration. Distributor is a link between retailer and Company. Distributor is affected by delay in delivery, affect on quality, loss in reputation of the company due to risk arise.
  • Regulators – Regulators could be IRDA, RBI, Pollution control board, Waste disposal board which provides guidelines to reduce the risk from time to time.,
  • The Media – Media provides information to public regarding various risk and hazard related to companies.
  • Private investors – the shareholders and the private investors are affected by the valuation of the company. Various credit rating agencies analyse the risk of companies and publish the rating through the media which is used by private investor to analyze the risk of the companies.
  • Banking industry – The companies take debt from banking institution to run its business. Risk associated with the companies are first analysed by the banks before giving loans.
  • Business partners – Business tie ups, partners are affected by each and every risk associated with business as their reputation is also affected.
  • The environment – Risk and hazard in the organization affects environment. Example – Fire spread in the industry and resulted in burning of most of plant which produces chemical oil which resulted heavy pollution and produced gases harmful for masses.

Others – Risk from Politics, Industrial associations and competition also plays vital role.