Question

a) There are various ways on how to tackle and minimize risks faced by a company.

However, some suggestions as to how to minimize risk may include developing an

enterprise risk management program for the company, and to determine what risks

pose the greatest danger to the company. Propose to the company how to manage

their property risks.

b) Businesses have four options to avoid losses stemming from pure risk situations. If

the situation required the president of an asbestos removal firm in Sepang, closed

his firm for four months because Movement Control Order (MCO) and determine

which option the firm is choosing for the case and please give reason why it being

chosen.

QUESTION 2

a) Eric owns a company that makes self-darkening windshields for vehicles, Sun-2-Shade. He is

aware of the risks of owning a business, and is considering various insurance plans. Eric

would like to make sure that he won’t incur any losses, and so is thinking about buying policies

from two different companies just to make sure that not only will he be covered, but could

make money while the company was down. Eric figures that he will be able to manage the

risks and losses if something happens. As Eric’s risk manager, please help him in evaluating

the risk and what would you tell him about this plan.

b) What are the issues involved in risk management and the environment?

Answer 1

a)Propose to the company how to manage their property risks.

1. Periodic Inspections -

• Conduct thorough and regular inspections.
• Ingoing report should be given great attention with all issues attended to with a sense of urgency.
• Include photographs, the more the better, particularly of potentially hazardous areas/ items. Images can be used to show landlords any defects but they can also be helpful in monitoring potential problems (such as whether mould is worsening over time)

2. Insurance - Ensure all property owners carry a minimum of $7,000,000 public liability insurance, however recommend they consider taking out a Landlord Insurance Policy which usually includes $280,000,000 of public liability cover along with rent default cover, malicious damage cover etc.

3. Repairs & Maintenance -

• Act with a sense of urgency to all requests from tenants for repairs and maintenance.
• Work with tradespeople that “get it”, that understand the liability potential that can arise if things are not attended to promptly.
• Do you have an induction process for new tradespeople where you set your expectations?
• Only use licensed and insured tradespeople

4. Building Safety Health Checks - Consider writing to the comapny of all such properties recommending they have the property undergo a safety health check for hazard identification purposes so as to minimise their own exposure (and in turn yours!) to bodily injury claims

b)What are the issues involved in risk management and the environment?

1. Failure to take known risks into account - it is very difficult to consider all the risks in a risk measurement system, or it is costly to do so. This is because nobody can forecast future events perfectly.

2. Mismeasurement of known risks - Risk managers sometimes make mistakes in assessing the probability or the size of losses. Similarly they could use the wrong distribution. For a financial institution with many positions, although they may properly estimate the distribution associated with each position, the correlation between the different positions may be mismeasured.

3.Failure in communicating risks to top management - Risk managers communicate information about the risk position of the firm to top management and the board. The management and board use this information to determine the firm’s risk strategy.

4.Failure in monitoring and managing risks - Finally, it is challenging for risk managers to capture all the changes in the risk characteristics of securities and to adjust their hedges accordingly. As a result, risk managers may fail to adequately monitor or hedge risks simply because the risk characteristics of securities may change too quickly to allow them to assess them and put on effective hedges.