Risk Management and Its Impact on Insurance Underwriting Process

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TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION1

Background of the Study1

Rationale1

Purpose of the Study3

Aims and Objectives5

Primary5

Secondary5

Research Questions5

Scope of the Study6

CHAPTER 2: LITERATURE REVIEW7

Risk Management: An Overview8

How to Measure Risk?10

Risk analysis: Methods of Evaluation10

Risks affecting the Organization11

Risk Management Evolution12

The Risk in the Industry and Management13

Risk Management Process in Organization14

British Standard ISO31000 Framework16

The Concept of Insurance17

Insurance Origins18

Insurance Organizations19

Underwriting20

ERM: Enterprise Risk Management21

Conceptual understanding on ERM23

How to successfully implement the concept of ERM?24

REFERENCES26

CHAPTER 1: INTRODUCTION

Background of the Study

Risk exists at heart of all endeavours whether it is day to day human life or business world. Families and individuals deal with risks daily with the assistant of businesses in this process. Businesses who handle their risks effectively manage to succeed their goals. In today's world everyone continue their mission to reduce uncertainty and gain high level of security.

Vulnerability lies in all businesses for instance, damage or destruction to its property, losing valuable employees, consequences of natural disasters, and other internal or external operation risks. With the growing development and expanding of business throughout the world and increasing services offered today, the businesses in recent times are exposed to more new risks than ever (Skipper & Kwon, 2007).

The true application of risk management practice challenges the exposed risks effectively. Technological and scientific advancement has provided support in managing these risks. Most of the modern risks are handled on national level while in some cases on international level. Healthier understanding of risks would support individuals and businesses to address the relevant issues efficiently (Jaafari, 2001).

Rationale

Risk is the doubt and uncertainty related to the happening of loss as a result of any situation. Risk can be predicted and usually it has a likelihood of occurring or not. According to the Institute of Risk Management (IRM) risk does not have any proper definition. It can only be expressed as an exposure to mischance or chance of bad consequences. International Organization for Standardization (ISO 31000, 2009) has defined risk as the effect of uncertainty of objectives. Risk is even carried by us in our daily lives. It is limitless and unavoidable at many times. The whole business world has been shook by the global financial crises where the businesses are forced to understand the risk and its management. In today's ever changing world, the need for risk management is very important.

The necessity to manage risk has further been highlighted by the increase in globalisation. Many companies buy insurance to save themselves from the possibility and predictable losses and risks. According to Skipper and Kwon (2007, p.81), insurance is an act of risk transfer mechanism as it is its primary function.

The companies transfer the risk to the insurance companies and enjoy their freedom against the facing of risks and any loss. Through the specialized underwriting process, the insurance companies provide and issue insurance covers to the companies. The business enterprises and individuals buy insurance from the insurance companies against the risk and occurrence of loss to protect ...