Risk Analysis and Management in Insurance Companies - Finance

This report provides a comprehensive overview of risk management within the insurance industry. It begins by defining risk management and its importance, then delves into specific risks faced by insurance companies, including reduced market access due to global trends and forced investments stemming from political risks. The report emphasizes the necessity of effective risk management policies to mitigate financial risks, such as market, credit, underwriting, liquidity, and operational risks. It highlights the role of risk management in customer service and incident management. The report provides a practical example of a credit risk management strategy, detailing both expected and unexpected loss calculations. Finally, it examines the role of insurance legislation in effective management, including the regulatory framework, solvency requirements, and the importance of reinsurance and onsite inspections, concluding that strong risk management is vital for the stability and success of insurance companies.

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Risk Analysis & Management
[Type the document subtitle]
3/5/2020
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Risk Analysis & Management 1
Contents
Introduction................................................................................................................................2
Risk affecting insurance companies...........................................................................................3
Reduced market access..........................................................................................................3
Forced investment due to political risk..................................................................................3
Importance of effective risk management policy.......................................................................4
Risk management strategy example.......................................................................................6
Role of insurance legislation in effective management of insurance companies.......................6
Conclusion................................................................................................................................10
References................................................................................................................................11

Risk Analysis & Management 2
Introduction
Risk management includes a process that includes identifying and controlling the risk
involved in the business. This is helpful for the company to reduce the threats that are
involved and can be controlled by the management previously to keep the business in track
and manageable. The risk management’s strategies include avoidance, restraints and various
other that would be working towards the preparation of taking action at the stance of
contingency or unfavourable condition. The risk management is not only helpful in
manufacturing, or construction industry, but also helpful in financial products and services
companies (Henisz & Zelner, 2010).
The report will include risk management strategies and discuss the risk involved in an
insurance company. Insurance is one of the financial products that are done to reduce the
potential losses in investment for the insurer. However the companies also have various risk
involved which would be discussed in the report further.

Risk Analysis & Management 3
Risk affecting insurance companies
There are various risk involved with the insurance companies, among which two of
the key identified risk are
Reduced market access
Western nations which factually endorsed unrestricted trade and fiscal globalization
have lately practiced expansions in administratively encouraged nationalism and isolationism.
Such progress might ultimately lead to trading obstructions besides marketplace admittance
concerns about the world. The eventual consequence might slowdown in financial growth
besides in the worldwide development of international companies, comprising big insurance
companies.
Potential impacts on insurance companies are reduced divergence possessions that
will make insurance goods further exclusive or costly, which diminish insurance progress and
hamper the business’s determinations at linking the defence gap. Around the globe wherever
patriotic propensities are firming up, market access drive additionally become problematic
and comprising re/insurance. Therefore, there would be an undesirable effect on international
trade then economic development. Thus, it can be said that one of the major risks for the
insurance companies and industry is diminishing of market access (Solomon, 2018).
Forced investment due to political risk
Numerous European regimes have attempted to kick-start financial growth in their
nations, although actuality antagonized through high levels of community segment
obligation, growing rights, besides massive forthcoming obligations. Groups of huge,
managed properties are enticing their consideration. Privately-held possessions had

Risk Analysis & Management 4
furthermore scrutiny of administrations in direction to development besides funding desired
commerce. Several mainstream parties favour such platforms.
The strategies would amount to a fractional repossession of insurers’ resources. If
additionally pervasive, the political parties would place the business underneath risk.
Restraint to “only small” proportions of entire assets can destroy in time, plus a forever
bigger portion of assets might formerly be confiscated. From an operative standpoint, it might
stance significant issues to asset-liability administration. Insurance corporations might route
to capital flight in case these strategies turn into additional conformist.
Likewise, response for insurance in nations exaggerated via such strategies might be
condensed, as the conviction positioned in insurers’ capability to recompense might be
declined. Insurers can face substantial balance sheet suspicions; whether they can encounter
their obligations that could turn destabilize the trust among the industry. Main influences of
this risk could be Insurance corporations that might face the cause of capital condensed.
Politically designated industries aimed at reserves that might be uncovered to asset damage
risks (Shah & Dong, 2018).
Importance of effective risk management policy
Risk management is one of the ways to control risk factors and minimize the risk
involved in the insurance business. The relevance of the risk management policies are
reflected through the level of risk involved in a business. The insurance is one of the unstable
businesses, as the reimbursement of the insurance products depend on uncertainty for which
people insure their future, thus the risk involve in this business is quite large. Thus one of the
key relevance of effective risk management policy is the minimization of the financial risk
involved in insurance business. According to a study conducted by NAIC, it can be said that
the core risks involved in an insurance company are market, credit, underwriting, liquidity,

Risk Analysis & Management 5
and operational risks; this reflects a positive impact of risk management in these companies.
Risk management includes the process or policy involving risk identification, and mitigation
that will eventually help as the potential impact on the activities conducted during the
business.
For an insurance company one of the relevance of risk management include customer
service provided by the company. In order to address such risk, the company needs to
consider some of the steps for integrating risk management and incident management.
Through risk management policies the company would be able to track the incidents like
complaints by the customer, categorised, and escalating incidents around the teams.
Other than this, the relevance reflects through help of risk management policy helping
to centralize and identifying the trends in feedback of customer. From these policies,
insurance companies may help implementation of controlling aids while addressing the
trends, for instance hiring of customer service.
Thus, it can be said that the relevance of the effective risk management policy for
insurance company include benefit from the risk management that are as follow
 Risk identification – In order to avoid risk or minimise it is important to identify the
possible risks. This can only be obtained through effective risk management policy, as
this would decrease the uncertainty for the companies and managers would be able to
make more logical decision making.
 Protection of company’s resources – a risk management policy and plan will not only
be responsible for the identification of the risk but this will make the company to
possibly protect their assets and resources through prioritising them. The policies will
save money, physical resources and time while spending more time on the resources
that are more prone to risk and important to the company.

Risk Analysis & Management 6
Risk management strategy example
One of the examples from the insurance company includes credit risk management
strategy, where the risk is identified and minimized through use of qualitative and
quantitative risk. This include exposing the possible liquidity risk which is quiet high for the
company, post settlement or pre settlement risk, and counterparty risks. This strategy of the
company includes two key measures that are expected loss and unexpected loss. The
expected loss is calculated or anticipated through risk category identification which is
through measured and time. This includes average loss rate, and fore closable cost.
However the more tricky aspect is the unexpected loss as this includes the risk that is
quite uncertain and has not been expected previously. The unexpected loss is the outcome
from the volatility of the invested return in time. Thus according to this strategy the insurance
company is conduct risk distribution based on the frequency of loss so as to prioritise the risk
involve
Role of insurance legislation in effective management of insurance
companies
Insurance are offering financial products that needs to be legally supported and
regulated through some of the official bodies that would have specific roles in the industry.
According to the analysis, there have been deficiencies identified for supervisory and
regulatory framework that would be governing life insurance corporation in the nation of
Jamaica. The governing regulation include “life insurance act 1971” that has been regulating
the insurance corporations that are operated in Jamaica (boj.org, 2019).
One of the bodies that have been regulating the Jamaican insurance companies is
financial service commission regulated with financial services commission act since 2001.

Risk Analysis & Management 7
Jamaica’s financial sector has experience instability for long period of time, which the
Jamaican government needed to intervene among the financial institutions of the country,
which included solvency and liquidity crisis. FSC is one of the self-financing body for
regulation of insurance companies and range from various powers to supervision the
regulatory bodies role reflect through bearing the causes that were reason for the crisis.
Other than this, the supportive body that has working as another side of the coin is
Bank of Jamaica. An insurance legislation is reflecting the supervisory role which reflects the
work of granting licenses to insurance intermediaries, protecting the policyholder’s interest,
regulation of fund investment by professional organisations and insurance companies and
maintaining the margin of solvency. Other than this, the role also included calling for the
information considering inspection of investigation and conduct of requirements (fscjamaica,
2019).
In directive to monitor and regulator affluence necessities, this has been prepared
obligatory to the insurers to defer to affluence report scheduled quarterly. In circumstance of
one unconventionality, the Supervisor initiates vital and appropriate stages thus to guarantee
that the Insurer grosses instant remedial act to reinstate the creditworthiness situation at the
lowest legal level (Smith, 2019).
Calculation of creditworthiness margin precedes into interpretation the intrinsic
danger that particular streak of commercial postures to the insurer. Advanced supplies are
positioned for hazardous outlines of corporate associated to others pretentiousness not as
much of risk to the insurers.
Underneath Asset-Liability Administration discussion, Insurer needs to deliver the
year sage predictable cash flows, in admiration of together possessions and accountabilities.
Insurer’s necessity upholds mismatching stashes in situation of some mismatch among

Risk Analysis & Management 8
properties and accountabilities as per a portion of the worldwide investments. Additional,
Life insurers remain obligatory to withstand a reporting taking place with compassion and
situation challenging application in the agreed presentation. Non-life insurers necessitate of
summation of a paper on ‘Fiscal Condition’ casing the compassion examination of the
financial reliability in consultation of the policyholders’ accountabilities (Parker, Loh, &
Chevers, 2017).
The superintendent necessitates organization of investments to be surrounded by the
insurer’s personal association. For ensuring a least level of safety of funds in link through
Insurance Act, the guidelines recommend positive proportions of the resources to be invested
in regime securities besides sanctioned securities.
Reinsurance: Transmission of risk over and done with Reinsurance is familiar merely
to the range specified in the conventions. Owing protections are constructed in to safeguard
that alterations are prepared to deliver for eminence of assets detained. None of the can
transmission instrument happens in the contemporary organization. To diminish the
counterparty hazard, the re-insurers in corporate is positioned need to have the least
prearranged score by an liberated credit rating organization by means of quantified in the
regulations. Legislature has stated the least investment supplies for an Insurance enterprise. It
additionally, proposes that Insurance corporations could exploit their processes merely over
regular stocks which need a solitary face price (oxfam, 2019).
Onsite Inspections: The Consultant has the authority to demand for whichever data
from beings associated to insurance commercial – Insurance corporations besides the
intermediaries, by way of might be obligatory since period to period.
On site inspection is usually approved on outgoing on a yearly foundation that
comprises of review of commercial workplaces then division workplaces of the corporations.

Risk Analysis & Management 9
These examinations are accompanied with interpretation to form acquiescence with the
necessities of Insurance Act, Guidelines and regulations enclosed by the body.

Risk Analysis & Management 10
Conclusion
From the report on risk management in insurance company it can be concluded that
there are various risk involve with the insurance companies, among which two of the key
identified. One of the major risks for the insurance companies and industry is diminish of
market access. Forced investment due to political risk is another risk that is fractional
repossession of insurers’ resources. The insurance is one of the unstable businesses, as the
reimbursement of the insurance products depends on uncertainty. The core risks involved for
a insurance company is market, credit, underwriting, liquidity, and operational risks, this
reflect a positive impact of risk management in these companies.
The company needs to consider some of the steps for integrating risk management
and incident management. The risk management is not only helpful in manufacturing, or
construction industry, but also helpful in financial products and services companies. One of
the examples from the insurance company includes credit risk management strategy,
exposing the possible liquidity risk, post settlement or pre settlement risk, and counterparty
risks. This strategy of the company includes two key measures that are expected loss and
unexpected loss.

Risk Analysis & Management 11
References
boj.org. (2019).
papers_pamphlets_developments_in_the_life_insurance_industry_in_jamaica__conse
quences_for_monetary_policy. Retrieved from
http://boj.org.jm/uploads/pdf/papers_pamphlets/papers_pamphlets_developments_in_
the_life_insurance_industry_in_jamaica__consequences_for_monetary_policy.pdf
fscjamaica. (2019). about-the-fsc. Retrieved from http://www.fscjamaica.org/about-the-fsc/
Henisz, W., & Zelner, B. (2010). The hidden risks in emerging markets. Harvard Business
Review, 88(4), 88-95.
oxfam. (2019). facing-risk-options-and-challenges-ensuring-climatedisaster-risk-finance-
and-insurance. Retrieved from oxfam.org: https://www.oxfam.org/en/research/facing-
risk-options-and-challenges-ensuring-climatedisaster-risk-finance-and-insurance
Parker, D., Loh, A., & Chevers, D. (2017). Operations sustainability maturity model:
preliminary findings of financial services in developing and developed countries.
Measuring Business Excellence.
Shah, H., & Dong, W. (2018). Evolution of seismic risk management for insurance over the
past 30 years. Earthquake Engineering and Engineering Vibration, 17(1), 11-18.
Smith, T. (2019). A buyer behavioural model for associating personality traits with likelihood
to buy life insurance. Journal of Customer Behaviour, 18(1), 61-78.
Solomon, E. D. (2018). Risk Management and Insurance Issues for Your UAS Operations:
Are You Prepared. RAIL, 1, 111.