Traditionally, risk management was limited in scope to pure loss exposures, including property risks, liability risks, and personnel risks.
On the other hand, entreprise risk management is a comprehensive risk management program that addresses an orgainization’s pure, speculative, strategic, and operational risks.
Securitization of risk means that insurable risk is transferred to the capital markets through creation of a financial instrument, such as a catastrophe bond, futures contract, option contract, or other financial instrument. The impact of risk securitization upon the insurance marketplace is an immediate increase in capacity for insurers and reinsurers. Rather than relying upon the capacity of insurers only, securitization provides access to the capital of many investors.
When analyzing events, the characteristics of the events must be considered. Events may be independent, dependent, or mutually exclusive. Moreover, a risk manager should characterize the relationship that exists between two or more variables and then using the characterization as a predictor. In analyzing cash flow in different periods, the time value of money also must be considered.
Although loss history provides valuable information, there is no guarantee that future losses will follow past loss trends.
Because risk management decisions will likely involve cash flows in different time periods, the time value of money must be considered.
The time value of money means that when valuing cash flows in different time periods, the interest-earning capacity of money must be taken into consideration.
A dollar received today is worth more than a dollar received one year from today, because the dollar received today can be invested immediately to earn interest. Therefore, when evaluating cash flows in different time periods, it is important to adjust dollar values to reflect the earning of interest.
A risk management information system (RMIS) is a computerized database that permits risk managers to store and analyze risk management data and to use such data to predict future losses.
An intranet is a private network with search capabilities designed for a limited, internal audience.