IT Security Risk Management Case Study 3

Running head: RISK MANAGEMENT AND INSURANCE

Risk Management and Insurance

Name

Institution

Risk Management and Insurance

A risk is a term used to describe the probability or chance of defining something that will not go according to plan either as a result of the occurrence of a certain event or even because a certain sequence that was supposed to be followed in the required series. A risk management plan, on the other hand, refers to the process of evaluating and assessing the risk an organization stands, analyzing this risk to establish the root causes and the possible alternatives the organization can take to reduce the risk involved and finally, the management and handling of the risk using the best possible alternative for the reduction of the risks that are posed. For every organization, there four major categories of risks, including technical, procedural, programmatic and cost risks (Baker & Griffith, 2007).

In the insurance industry, risk assessment entailed the identification of different hazards that could occur in the workplace, then defining them as linking them with the hazards they could result to. Its role as a procedural and systematic process is to ensure that the work environment is safe especially occupationally for the staff. It involves monitoring the work environment and careful investigating it to prevent the occurrence of dangerous situations (Baker & Griffith, 2007). This case study conducts a risk assessment of Merrica Insurance company

Risk Description and Causes

1. Ergonomic and physical disadvantages that could be as a result of siting in the wrong furniture for long hours.

2. Social severity and psychological stress to employees due to the high pressure nature of insurance jobs

3. The safety of the machines, equipment and other tools used at work like computers and technology based apparatus.

4. Occupational accidents, and diseases as well as work-related stress could induce health hazards to employees of the company

5. Personal qualifications of the employees risk being either misused or underused at the workplace

6. Inability of Company projects to take off as a result of the lack of control and direction

7. Poor contract management

8. Appointment of inexperienced teams that are incapable of carrying out their responsibility

9. Inability to correctly convey information and work instructions (Pennacchi, 2006).

People at risk

The risks identify pose a great threat to the employees of the company, and the outsourced staff.

Risk management methods

• Effectively use of safety devices and methods to reduce the risk of unsafety

• Repairing the work-related deficiencies to ensure that the deficiencies that cause objectives not to be achieved

• Using ergonomically designed furniture and equipment to ensure the furniture and equipment do not cause the employee any long-term effects.

• Smooth operation at the insurance company because the consequences of different wrong procedures and to reduce the impact of stress on the lives of the employees.

• Considering the effects of cost and cost risks to measure and eliminate risks by using reasonable amount of money (Pennacchi, 2006).

A well assessed work environment requires that the insurance company is fully evaluated leading to a rise in the safety levels in all departments as well as regular follow ups that aid with constant improvement and development of the organization.

Risk Assessment Methodology

Due to the nature of the insurance business risk assessment in this industry is the method used to calculate the rates of the premiums that people will pay, when seeking financial protection for something. The methodology employs the use of a software whose algorithm is already prewritten to gauge the risk that a policy holder will claim their policy. The algorithm compares the risk with some predetermined key indicators about the policy holder and the result is balanced with the profitability of the company and the need for the policyholder to use the policy. Detailed sets of data are then used to segment the predicted behaviors of certain customer groups based on gender, age group, history of a certain illness, or family status Greiving, Fleischhauer, & Lückenkötter, 2006).

Since many insurance providers seek to protect the insurance companies and the policy holders as well, they ought to establish the potential exposure the risks of claims, whose effect is paying out very high amounts in payouts. The assessment of risks in this industry also includes forecasting and predicting economic aspects, trends in the industry, wages of the companies’ employees and staff as well as market stability. All these assessments have to be conducted so as to establish the amount of risk for the insurer as well as to determine the amount to be paid out as a premium for financial protection (Cho, Choi, & Kim, 2002).

From the assessment of risks that leads to the calculation of the premiums the policyholder ought to pay out, when the risk of compensation from the insurer goes up, the customer’s payment tends to increase. The perfect sample to illustrate this phenomenon is in the risk assessment for health insurance policies which tend to charge people at a higher risk of hospitalization more than they do everyone else because these people are more likely to cost them more money (Cho, Choi, & Kim, 2002).

In most countries, auto insurance is a requirement by law for all drivers. This policy covers a potential cost of either theft or accident, where the cost the company caters for covers repair of vehicles, their replacement, or the injuries sustained in the accident. For this specific policy, the risk assessment is conducted on the basis of the person and the probability that they will cause an accident using common criteria like credit history to show responsibility, age to show responsibility and driving experience, address to indicate to the company the vulnerability to accidents and theft for city dwellers, driving record for experience, marriage status, prior coverage and gender. In other products like life cover, where the compensation payments are paid out after the policy holder’s death, the lifestyle and life expectancy of the holder are of key interest for risk assessment services. Accident prone behavior as well as a risky family history or a personal health have a serious effect of cost indicators of the company Greiving, Fleischhauer, & Lückenkötter, 2006).

Effective risk management practices are extremely necessary for in today’s business world because they have become the very regulations of the entire industry. A good understanding of the risks that an insurance company allows it to implement a suitable structure of company structure, in an effort to mitigate those risks. Since the industry is constantly undergoing changes as new risks present themselves, it has become even more complex for an industry to fully comprehend their risk factors and mitigate them. The failure to mitigate these risks poses great dangers in the operation of the organization. And effective risk assessment methodology should offer the company a holistic approach to the risks exposed thus allowing the company maximize on its opportunities for growth (Baker & Simon, 2010).

Risk Mitigation Strategy

Every day, insurance companies continually face emergent different risks that threaten to undermine the values that are the foundations of the objectives, goals, and business models of most of this companies. New innovative technologies and paradigms employed in the business world continue to impact all the facets of business both radically and rapidly. Mericca Insurance company has put together a strategic risk mitigation plan that will ensure the company can proactively tread in this extremely challenging business environment and continue to flourish regardless (Damodaran, 2007).

The insurance industry is faced with such great challenges and risks thanks to the trends in technological transformation, a change in the preferences of the consumer, and the economy. The result of this has been a rapid evolution and an increased digitization of the economic front. These changes have posed great threats which have greatly affected the operations and prepositions of these companies. The risk mitigation procedures are employed to address the risks that would destroy the value proposition or the business model of an insurance company. Risk mitigation strategies are effective in the measurement and the minimization of the risks that are usually difficult to identify, helping the insurer to prevent bad business decisions that would gravely affect the company (Rejda, 2011).

The best risk mitigation strategy helps the company to cope with technological advancements as competition through a strategic risk management framework. The framework this strategy provides a holistic approach for the management. This strategy can help to manage the adverse effects of risks that could disrupt the smooth running of insurance to achieve positive growth through the capitalization of the resulting opportunities. Advantages of using a strategic risk management framework allows the company to create a framework that gibes the company skills, tools, and techniques to mitigate and exploit the risks that present themselves (Damodaran, 2007).

For the strategy to be put in action a strategy risk management framework ought to establish its capability through the identification of a leader in the risk mitigation process, as well as mapping out the implication of the strategy to address the needs and risks of the company. It also includes influencing the tools that sense different risks for an early warning to manage the risks. Further, the strategic risk management framework could be integrated into the risk sensing process so as to build a system that would help the management of the company to focus on the major risks that could adversely affect the company’s growth. The strategy also requires for the management to make action plans that are based on the company’s different scenarios. This could be effective if the key players in management are involved. Drills can be carried out to test the preparedness of the firm to the scenarios that could occur. Cognitive tools could also be implemented to enhance the making of good enterprise decisions through the use of computer based models. These tools could help the executives to test the rationality of their decisions, thus highlighting traps that can hinder risk mitigations (Skipper, 2008).

Finally, the most important strategy in this mitigation process is ensuring that the business model of the company remains safeguarded through the use of terms and conditions that do not change over time and by ensuring that the product mix the insurance company offers are founded on strategic decisions and not deviations to respond to conditions of the market (Rejda, 2011).

References

Baker, T., & Griffith, S. J. (2007). Predicting corporate governance risk: Evidence from the directors'& officers' liability insurance market. The University of Chicago Law Review, 487-544.

Pennacchi, G. (2006). Deposit insurance, bank regulation, and financial system risks. Journal of Monetary Economics, 53(1), 1-30.

Greiving, S., Fleischhauer, M., & Lückenkötter, J. (2006). A methodology for an integrated risk assessment of spatially relevant hazards. Journal of environmental planning and management, 49(1), 1-19.

Cho, H. N., Choi, H. H., & Kim, Y. B. (2002). A risk assessment methodology for incorporating uncertainties using fuzzy concepts. Reliability Engineering & System Safety, 78(2), 173- 183.

Baker, T., & Simon, J. (Eds.). (2010). Embracing risk: The changing culture of insurance and responsibility. University of Chicago Press.

Damodaran, A. (2007). Strategic risk taking: a framework for risk management. Pearson Prentice Hall.

Skipper, H. D. (2008). Risk management and insurance: perspectives in a global economy. John Wiley & Sons.

Rejda, G. E. (2011). Principles of risk management and insurance. Pearson Education India.