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RISK MANAGEMENT

CONCEPT & PHILOSOPHY

MANOJ SAH

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RISK MANAGEMENT

India is a religious country believedto be worshipping 33 crs. Gods Its verynatural, at times, we becomeoverconfident or complacement.However the fact remains that God help

those who help themselvesDay by day Risk is becoming increasingly

complex. Nature of Risk is changing.

Risk may be financial, property,business, environment, social, Natural,Technical, Brand equity/Goodwill,Liability, IT, Bio tech., cloning, Genetic,Medical/Health, Satellite etc.

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In the organisation, everybodyremains concerned and talk aboutprofit, performance and productivity.We make meticulous plans and talkabout vision, mission and goals. In theprocess, we forget to make provisions

for unforeseen and uncertain losses. In spite of best laid plans,practice, protections and precautions,

accidents/losses do take place. Theyare uncertain, unpredictable butinevitable.

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* Day by day- Things are becoming

increasingly COMPETITIVE,DEMANDING & AGGRESSIVE

* Road ahead is uncertain andunpredictable calls for Prudent Risk

management.

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DefinitionOfRisk Management ?

The Identification , Analysis andEconomic control of those risks whichcan threaten the assets, human beingor earning capacity of an enterprise.

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TYPE OF LOSSES

Financial aspects is necessary to know the various losses thatcan occur inspite of the fact that sufficient care has been taken,to avoid them.

PROPERTY : damage or loss resulting from - fire, explosion,

flood, theft or any other peril.

LIABILITY : for injury to third party damage to theirproperty caused by negligence or other

tortuous act of the firm, its employees .

PERSONNEL LOSSES : injury to or death of employee may

involve extra cost by way of compensation

PECUNIARY LOSSES : such as - loss of sale, business

interruption due to damage, misappropriation or

theft of money .

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OBJECTIVES

PROTECTION OF THE COMPANYS ASSESTS ANDEARNINGS AGAINST LOSS,INCLUDINGPROTECTION AGAINST LEGAL LIABILITIES, ALL AT AMINIMUM COST COMMENSURATE WITH

SATISFACTORY COVER .

THE REAL OBJECTIVE OF RISK MANAGEMENT IS TOREDUCE FEAR OF THE UNKNOWN AND UNEXPECTEDEVENTS AND TO CREATE CONFIDENCE IN FUTURE.

Mr. Felix Kloman

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MANAGING OF RISK

RISK AVOIDANCE

RISK REDUCTION

RISK RETENTION

RISK TRANSFER

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WHAT IS RISK ?

* Risk is a chance of loss

* Risk is the possibility of loss

* Risk is uncertainty

* Risk is probability of any outcome beingdifferent from the one expected.

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A systematic way of protecting

business resources and incomeagainst losses so that the aims of acompany can be reached without

interruption

RISK MANAGEMENT

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WHY RISK MANAGEMENT

*High Capital Intensive in nature.

*Risks beyond human control

*Element of uncertainty

*Protection & Security for growth.

WHY RISK MANAGENENT

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*Risk identification

*Risk analysis/measurement

*Risk reduction

*Risk retention

*Risk transfer (by Insurance)

PLANNING FOR RISK MANAGEMENT

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INSURANCE

Insurance is a contract whereby in

return for the payment of premium bythe insured, the insurers pay thefinancial losses suffered by the

insured as a result of the occurrenceof unforeseen events.

WHAT IS INSURANCE ?

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Insurance is a method in which a largenumber of people exposed to a similar risk

make contribution to a common fund out ofwhich the losses suffered by the unfortunatefew due to accidental events, are made good.

The sharing of risk among large groups of

people is the basis of insurance - The lossesof an individual are distributed over a groupof individuals.

METHOD OF INSURANCE

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BASIC PRINCIPLES OF INSURANCE

1)Utmost good faith

2)insurable interest

3)Proximate cause.

4)Indemnity

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Parties to a commercial contract, according to law, are requiredto observe good faith I.e. the seller cannot mislead the buyer inrespect of the transaction.

In insurance, the proposer has a legal duty to disclose allmaterial information about the subject matter of insurance tothe insurers who do not have this information.

Material information is that information which enables to decidea) Whether he will accept the risk and

b) If so, at what rate of premium and subject to what terms and

conditions

UTMOST GOOD FAITH

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The owner of a property has a right toeffect insurance on the property if he islikely to suffer financially when the

property is lost or damaged toaccident- This is a legal right which iscalled insurable interest.

Without insurable interest, the contractof insurance will be void.

INSURABLE INTEREST

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CLAIMS ARE PAID BY THE INSURERS,IF THE LOSS PROXIMATELY CAUSED

BY A PERIL INSURED AGAINST.

PROXIMATE CLAUSE

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Object of insurance to protect the financialinterest of the insured in the subject matterof insurance.

-Insured cannot recover more than his

financial loss.

Principle of indemnity states that under apolicy insurance, the insured is to be placedafter a loss in the same financial position inwhich he was immediately before the loss.

INDEMNITY

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Limitation of Insurers liability

a) If sum insured is less than the measure

of indemnity, only sum insured is payable.

b) Property insurances-Condition of

averageIf there is under insurance only

proportionate value is payable.

C) Excess

Contd.

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NATIONALED INS.CO. - NICL, UIICL,OIC,NIA.

PVT INS.CO 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.

INSURANCE COs.

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CONVENTIONAL COVERS CUSTOMISEDCOVERS

TARIFF NON TARIFF

i) FIRE i)MARINE i) PACKAGE POLICYii) MBD ii)SPL.CONT. ii) SPL.CONT.POLICYiii) CPM iii) GPAI ETC. (ON FIRST LOSS) ETC.

iv) MVv) BEvi) EEIvii) IAR ETC.viii) EAR Insu.ix) Public Liability Act policy

TYPE OF COVERS

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RISKS COVER

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

a) Fire

b) Lightening c) Explosion/Implosion d) Aircrafts Damage e) Impact Damage f) Subsidence and landslide including Rock slide g) Bursting and/or over-flowing of water tanks, apparatus and Pipes h) Missile testing operations. i) Leakage from Automatic sprinkler installations. j) Bush Fire k) Riot, strike and Malicious Damage (optional) l) Storm cyclone, Typhoon, Tempest, Hurricane, Tempest Flood and Inundation (optional)

FIRE INSURANCE

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Insurance Trend in NTPC Power Plants

4523

2384022868

21057 21169

35222

4049439628

30075

20160

31561

33285

37417

41298

39730

45596 45805

47400

54901

4073 3907 3971

4028

6849

8279 8300

6600

17085 17085

18858 1902819445

20445 2094521945

22435

0

10000

20000

30000

40000

50000

60000

97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06

Financial Year

Premium(Rs Lacs)Premium(Rs/MW)

Fire Sum Insured (Rs Cr)

Capacity (MW)

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WHAT IS - EAR INSURANCE

AN ERECTION ALL RISKS INSURANCE IS AN INSURANCE

ON PROPERTY AGAINST ACCIDENTS RESULTING INDAMAGE TO MACHINERY AND STEEL STRUCTURESWHILE IN THE NORMAL COURSE OF ERRECTION ORCONSTRUCTION.

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SCOPE OF COVER

Location Risk - Fire, Lighting, 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.

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PERIOD OF COVER

The insurance cover commences immediately after themachinery is unloaded at the erection site and continuesuntil testing operation have been completed.

The duration of the testing operation is normally limited

to four weeks but longer testing can be granted byspecific mention on the policy.

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EXTENSION OF COVERS

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

Secondhand Machinery- Can be covered onlyagainst extra premium.

Dismantling cover- Can 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.

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EXCLUSIONS

Loss of Damages due to faulty designs, defectivematerials, bad workmanship.

Manufacturing Defects- Being not related to erectionwork..

Loss or damages to erection machinery and equipmentdue to mechanical/electrical breakdown.

Loss or damages due to willful act or negligence of theinsured or his representatives.

Loss or damages due to nuclear reaction, radiation.

Loss due to normal wear and tear.

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Thank You

MANOJ SAH