Risk Management is an economic operation for a company's assets, liabilities and earnings. Its objective is to minimise uncertainties and contingencies in cash flows from the impact of fortuitous losses arising in the course of the company's operations. It seeks to achieve financial stability through conscious decisions on risk retention and risk transfers. In the matter of risk transfers the decisions involve commercial contracts wherein risks are transferred contractually to vendors, contractors and suppliers or even customers. The residual risks are considered for transfer to insurer. Hence, Risk Management is an assessment of perceived risks for assets, liabilities and operations and a pursuit to keep them manageable.

Risk Management is:

Ö   financial protection of all fixed and current assets against fortuitous loss.

Ö   anticipating hazards which give rise to a loss and adoption of preventive measures across all areas of assets, liabilities and operations.

Ö   active assessment, review and decision to retain or transfer risks.

Ö   financial protection for fixed costs, gross profit, alternate accommodation, increased cost of working in the event of a fortuitous loss.

With increasing privatisation of insurance industry it is expected it will lead to:

Ö   reduced premiums.

Ö   modern wordings and insurance practices.

Ö   higher standards in risk management.

The legal basis of insurance rests upon restoring an Insured to his position prior to occurrence of a loss and as agreed. The legal aspects subsisting insurance are as follows:

An Insured must be affected by a loss in terms of his assets, liabilites for damages, loss of earnings  which cannot be made good, increased and continuing costs. Such interest would include vicarious liability such as a bailee or for goods held in trust.

New replacement value is recommended. The issue at the time of loss of an asset is its cost of replacement. Funds required are met through internal resources or external borrowings. Insurance offers a third alternative to finance the replacement of the lost asset. In principle a similar logic pursues current assets and earnings.

Where the sum insured is lower than the actual value at the time of loss as per basis agreed then the Insured bears a rateable proportion of such loss.

In addition to above any deductible as per policy is not paid.

This legal principle totally eliminates any speculative loss and pays for pure loss only. It seeks to restore a person to his original position prior to loss occurrence and excludes any profit taking and betterment through an insurance claim settlement.

The details and features of risks for assets and interests as insured are not entirely known or is informed to the Insurer. However ,notwithstanding this limitation , insurance is provided in utmost good faith of a proposal from an Insured as if made in right earnest and with due diligence.

For the above reason, any material change in risk occurring during the policy period needs to be notified to the Insurer prior to the change.

Information and answers as provided within a proposal made to an Insurer constitute a legal basis for payment or rejection of a claim. They have the legal context of an implied warranty whose breach would result in repudiation of a claim.

Where the Insurer elects to settle a claim then the Insured's rights of recovery are to be surrendered to the Insurer at the latter's request in line with the legal principle of Indemnity.

I.   Insurance Policies:

Ö   Review company`s nature of business, property, movement, storage of products, etc.

Ö   Verify if policies conform to set  management standards and designated risk coverages.

Ö   Examine the validity of the policy with reference to period, declarations made and premiums to be paid.

Ö   Examine for needful inclusion of additional perils and deletion of over purchased covers.

Ö   Check valuation for sum insured including cost of freight and erection as appropriate

Ö   Assess and define needs for insurance in respect of  expansion and new projects.

Ö   Verify insurance adequacy for loan agreements.

Ö    Establish satisfaction of management with reference to deductibles and cover limits.

Ö   Any other insurance arranged for other interests and service level within the same.

II.   Insurance Claims:

Ö   Review of procedure for preparation of claim and process of submission of details to Insurer. Check for omissions to make a claim.

Ö   Review maintenance of claims record.

Ö   Examine for accuracy and promptness in claims as submitted.

Ö   Examine for follow up for expeditious settlement including within it a decisive review for repair and replacement as a part of claim settlement.

Ö   Age analysis to be done for outstanding claims for selective attention and processing.

Ö   Review for claims lost due to being sub-standard  and  time barred and factor reasons into operational procedures and claims submission procedures.

Ö   Review and factor reasons for repudiated claims into operational procedures.

Ö   Accrual of claims and relationship issues.

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