MODULE 4

Risk Treatment and Financing Practices

This module is designed to examine risk treatment and financing issues, including selection of risk treatments, preparing risk treatment and financing plans, implementing plans and monitoring and reviewing the risk treatment and financing process. The module will also help you develop an understanding of risk treatment and financing processes within your organisation.

Section 1: Risk Treatment and Financing— An Overview

This section looks at the meaning of risk treatment and risk financing and briefly describes various types of risk treatment and financing. The section outlines how risk treatment and risk financing fit within the risk management process. The section also examines the importance of risk treatment and financing and the consequences of not applying appropriate treatment and financing strategies.

Learning outcomes

  • Identify the roles of risk treatment and risk financing in an organisation and determine how they fit into the risk management process
  • Describe risk financing options such as insurance, funded and unfunded loss reserves, a line of credit, captive insurers and mutual pools
  • Explain the importance of risk treatment and financing, and the consequences of not applying these strategies.

Section 2: Risk Treatment and Financing— The Process

This section tackles the processes that underpin risk treatment and risk financing. The process involves identifying, assessing and selecting appropriate risk treatment and financing options. The section also looks at preparing a risk treatment and financing plan and how such plans are implemented, monitored and reviewed.

Learning outcomes

  • Describe the risk treatment and financing process
  • Identify risk treatment and financing options
  • Assess and select risk treatment and financing options
  • Prepare a risk treatment and financing plan
  • Describe how to implement, monitor and review a risk treatment and financing plan.

Section 3: Risk Treatment in Practice

This section discusses utilizing the various techniques for identifying and designing risk treatments. It explains the principles of risk allocation and how they apply to the main categories of risk treatment. The section also examines how cost-benefit analysis is used to select appropriate risk treatments.

Learning outcomes

  • Describe how to utilize various techniques for identifying and designing risk treatments
  • Explain the principles of risk allocation and how they apply to the main categories of risk treatment
  • Utilize cost–benefit analysis in selecting appropriate risk treatments.

Section 4: Risk Financing in Practice

This section examines how financial risk retention levels are established and set, and the internal and external considerations associated with setting these levels. The section outlines the key issues for consideration when establishing traditional risk financing programs, such as risk retention and risk sharing issues. Finally, the section looks at advanced risk financing strategies such as integrated covers and programs, dual trigger policies, captive insurers, finite/blended risk policies, contingency capital, weather derivatives, insurance linked securities.

Learning outcomes

  • Explain how financial risk retention levels are established
  • Assess the internal and external considerations for an organisation planning its risk retention strategies
  • Explain the traditional and advanced risk financing methods
  • Assess options for risk treatment and risk financing strategies
  • Utilize relevant information in determining appropriate risk financing strategies.

Section 5: Preparing and Implementing Risk Treatment and Risk Financing Plans

This section discusses the general principles for preparing risk treatment and financing plans. It examines options for preparing plans, communication strategies for treatment plans, implementation of plans and integration into existing organisational policies procedures and frameworks.

Learning outcomes

  • Apply general principles for preparing risk treatment and financing plans
  • Prepare risk treatment and risk financing plans
  • Identify risk communication issues in a risk treatment plan
  • Determine effective implementation strategies for executing risk treatment and financing plans.

Section 6: Monitoring and Reviewing Risk Treatment and Risk Financing Plans

This section focuses on the monitoring and review of risk treatment and risk financing to ensure that risk exposures are effectively managed. The section looks at establishing a monitoring and review regime within an organisation and the organisational performance criteria for monitoring and review of risk treatment and financing.

Learning outcomes

  • Monitor and review risk treatment and financing plans
  • Utilize appropriate recording methods to ensure that risk treatment and financing plans and processes are conducted and maintained.