Introduction to ERM Exercises

Introduction to ERM Exercises

Chapter 1: Modern Risk Management

1. With respect to the story about Hurricane Andrew in Florida, what is the ERM lesson learned?

Hurricane Andrew struck Florida on the 24th of August 1992 and had taken everyone by surprise. The catastrophic consequences taught a lot of lessons to the concerned authorities. These included the proper building of the shore barriers, the increase in the people in the rescues forces and the increase in the budget of the emergency services that are provided in such cases. Apart from that, a major lesson that was learned through this incident was that the insurance was never enough to cater the degree of losses caused by this hurricane. Furthermore, another important lesson that this incident gave the authorities was that of an alarm that natural disasters can never be avoided, but the results could be somewhat manipulated. This resulted in evacuation techniques as well as informing techniques to cities that are near the shore.

2. Why are the three definitions of risk inadequate for modern organizations?

The inadequacy of risk can be defined as the inability of an organization to manage the possible uncertainties. This is true for most organizations that do not keep a proper ERM strategy. Risk taking means broadening the horizons of operations, which ultimately is reflected in the profit and loss statement of organization. Thus, it is important that organizations, especially in the modern time, keep a proper ERM for t he purpose of ensuring that they can evaluate what risks can be taken and what ones should be strongly avoided.

3. How do the two characteristics of enterprise risk add to our understanding of risk management?

Among the main manifestations of occupational risks are risks of interruption, or unevenness of the enterprise, as well as natural disasters, accidents, emergencies (floods, earthquakes, fires, etc.). Financial risks for enterprises are the threat of bankruptcy. This type of risk includes the financial risks and the risks of loss of income from trading in securities. Risks to other financial entities are foreign currency risk, commodity risk in demand for public services, integrated risk responses of firms and consumers in the governmental activities in the economic sphere, etc.

4. Which of the three components of enterprise risk can be mitigated by using insurance? Why does insurance not work for the others?

Insurance risk - is the transfer of certain risks insurance. Thus, with a deep reconstruction of large industrial enterprises can be used by two main ways of insurance: property insurance and casualty insurance. With property insurance insures risks artist reconstruction of marine cargo, standard or optional equipment, technological equipment, owned contractor. Accident insurance coverage involves general civil and personal responsibility.

Depending on the insurance risk insurance contract performer, for example, a contractor of reconstruction can be of three types. Standard contract of fire insurance provides protection from direct physical loss or damage to the property specified in the contract. Extended the contract of fire insurance contract contains standard fire insurance, and one or a few specific amendments that take ...