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RISK MANAGEMENT 655
OBJECTIVES: To provide an understanding and an appreciation of the principles and practices of risk management in
order to enable production of the optimum strategy for the handling of risk in an organisation.
Knowledge
rating
NATURE OF RISK MANAGEMENT
Principles, essential features and objectives of risk
management. 3
Function and duties of a risk manager and the risk
management department of a company. 3
Content and purpose of a companys risk management
philosophy, statement, manual and report. 2
Place of risk management within the organisational structure. 1
ANALYSIS OF RISK
Risk and human behaviour, including the measurement
of an individuals attitude to risk. 1
Process of decision-making in relation to risk. 2
Factors which influence group attitudes to risk taking. 1
Techniques used to identify and assess potential risks to
an organisation and the advantages and disadvantages of
each technique. 3
Techniques for gathering data. 2
Methods of measuring, representing and comparing data
for analysis and the relative advantages of each method. 2
Probability theory, the ways in which probabilities are
derived and their uses. 3
Practical use of combining of probabilities, including
alternative events, joint events and probability trees. 2
Application of probability distribution. 2
Application of normal and binomial distribution formulae
to practical situations. 3
EXPOSURE TO AND CONTROL OF RISK
Nature of the risks to the assets and earnings of an
organisation. 3
Objective and techniques of loss control management. 3
Features of a contingency plan. 3
Essential ingredients for and the nature of fire, including
the consideration of factors for the prevention and
control of fire. 2
Use of passive measures in the design and construction of
buildings, to prevent or limit loss by fire. 3
Use of active extinguishment methods to prevent or limit
loss by fire. 3
Application of measures which can prevent explosions or
limit their effects. 3
Use of detection devices and alarms to prevent or limit
loss by intruders. 3
Identification and control of money, fidelity guarantee,
computer, terrorism and political risks. 2
Classification and measurement of damages awarded for
personal injury and for damage to chattels. 2
An occupier's common law and statutory duty of care
arising from premises, including the liability in respect of
independent contractors and trespassers. 2
Environmental Protection Act 1990 and the categories of
pollution covered by the Act. 2
The duties of an employer to his employees at common law. 2
Main statutes relating to an employer's legal liability to
his employees and the effect of breach of statute,
particularly the Health and Safety at Work etc Act 1974. 2
Legislation affecting the potential legal liabilities arising
out of the sale or supply of goods and services, including
the Sale of Goods Act 1979 and the Consumer Protection
Act 1987. 2
EC Directive relating to general product safety. 2
Products liability overseas, including the USA. 2
FINANCING OF RISK
Role of risk financing in the risk management process. 3
Variables which determine the nature of risk financing
techniques, including loss experience and cash flows. 2
Risk financing techniques, including transfer to a
non-insurer, retention of risk and insurance. 3
Sources of data and the recording of an organisations
loss experience. 2
Adjustments to data for claims reported but not settled
and for losses incurred but not reported. 1
Adjustments to data for inflation and changes in underlying
exposure. 1
Calculation of the future value and present value of a single
cash flow or series of cash flows. 3
Methods and main features of self-insurance. 2
Methods of financing self-insurance schemes and their
respective advantages and disadvantages. 3
Reasons for and the economic benefits of self-insurance. 3
Factors which determine levels of retention. 2
Self-insurance programmes. 3
Benefits of insurance and the practical problems
associated with insurance. 3
Analysis and evaluation of the insurance programme,
including determining the insurance need, reviewing the
current programme and the appraisal and selection of
brokers. 3
Use of and the different types of deductible available. 2
Methods of selecting an appropriate deductible, including
the use of selection rules and models. 2
Transfer of risk by non-insurance means, including the
use of contractual terms and conditions. 3
Unfair Contract Terms Act 1977 and its effect on the
supplier of goods or services. 2
Use of management devices for financial or speculative
risks, including the use of hedging, financial futures and
bonds. 1
Main reasons for the formation of captive insurance
companies and the benefits and problems of such
formation. 3
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Operation of the different types of captive insurance
company. 2
Feasibility of forming a captive and the use of feasibility
studies, including the main criteria to be considered. 3
Tax position of captives. 1
Use and operation of fronting facilities. 3
Factors to be considered in the underwriting policy of a
captive, including the rating systems. 2
Nature of reinsurance, the use of facultative and treaty
reinsurance and the differences between them. 2
Operational and administrative requirements of a captive
insurance company. 3
INTERNATIONAL RISK MANAGEMENT
Factors which have contributed to the growth of
international operations of companies. 1
Special features of international risk management. 2
International insurance programmes for multinational
corporations. 3
Different types of legal system and their distinguishing
features. 1
Concept of tort and the different forms of legal systems
used in Europe and the USA. 1
Structure and regulation of the insurance market in the
principal industrialised nations. 1
Control of foreign insurers writing business in the principal
industrialised countries. 2
Knowledge ratings
Each sub-topic has been designated a numerical knowledge rating as
follows:
1 General background awareness necessary.
2 Requires a knowledge of the major elements of procedures or
concepts and their uses.
3 Requires the ability to evaluate concepts, issues, policies and
procedures, together with an understanding of associated aspects
of these items and their application to various situations.
Study materials
The following list provides details of various publications which may
assist with your studies. The primary text for this syllabus is shown in
bold type. Periodicals and publications listed as additional reading
will be of value in ensuring candidates keep up to date with
developments and in providing a wider coverage of syllabus topics.
The reference materials cited are authoritative, detailed works which
should be used selectively as and when required.
Primary text
Coursebook 655: Risk management. The Chartered Insurance
Institute.
Additional reading
Captive insurance companies: establishment, operation and
management. P. A. Bawcutt. 3rd edition. London: Woodhead-
Faulkner, 1991.
Corporate risk management. G. C. A. Dickson. London: Witherby,
1989.
Introduction to risk management. Neil Crockford. Cambridge:
Woodhead-Faulkner, 1986.
Managing risk. Jim Bannister. London: DYP Group, 1989.
Practical risk management. J. E. Bannister, P. A. Bawcutt. London:
Witherby, 1981.
Risk analysis. Gordon C. A. Dickson. 2nd ed. London: Witherby, 1991.
Risk management. Neil Crockford. London: Witherby, 1991.
Reference materials
Consumer Protection Act 1987. London: HMSO, 1987.
Environmental Protection Act 1990. London: HMSO, 1990.
Handbook of risk management. Robert L. Carter, G. N. Crockford, Neil
A. Doherty (eds). Kingston upon Thames: Kluwer, 1974-.
The Health and Safety at Work Act 1974. London: HMSO, 1974.
Sale of Goods Act 1979. London HMSO, 1979.
The Unfair Contract Terms Act 1977. London: HMSO, 1977.
Periodicals
Candidates should try to read as many different publications as
possible. Those which include features on risk management topics
include:
The Journal. London: Chartered Insurance Institute. Six issues a year.
Post Magazine. London: Timothy Benn. Weekly.
Corporate Cover. Corporate Cover Publications Ltd. Monthly.