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Why is identifying risk exposures significant? What are the ramifications for organizations that fail to properly identify risks they are exposed to?

Why is identifying risk exposures significant? What are the ramifications for organizations that fail to properly identify risks they are exposed to?

DEFINING AND CATEGORIZING VARIOUS FORMS OF RISKS

Competency

Construct a framework for identifying, evaluating, and categorizing risk and risk management tools.

Instructions

LTD Acceptance is a private property and auto insurance carrier that specializes in sports cars and motorcycles. This organization is owned by LTD Capital, a large equity group with over 15 holdings. LTD Acceptance is the parent company’s single largest holding as it drives 70% of total revenue. Due to the inherent risk involved in that segment of the market, many of LTD Acceptance’s competitors do not offer policies for sports cars or motorcycles. This market segment is underserved which is why the organization has 20,000 active policies for a sports car or a motorcycle.

LTD is headquartered in Houston, TX. LTD does not sell insurance directly to the public. Instead, it uses third-party agents to sell its policies. LTD handles all customer service needs including claims intake, policy services, and general questions. The company operates in four states: California, Texas, Louisiana, and Florida. Currently, LTD does not have an active system in place to ensure that its agents are in fact using LTD guidelines to screen potential policyholders. However, no evidence of negligence has emerged so far as the organization has yet to have a year in which it was not profitable. LTD has also had the good fortune of not suffering losses because of natural disasters or catastrophic events.

In your first days of your new role as the senior risk analyst, you know your first task is to complete a framework for adequately identifying risk exposures. During this process, you realize that many of your counterparts lack the basic understanding of how to identify risks. Your supervisor has come to you and asked for a report outlining the importance of identifying risks to support risk management activities and positively impact the company’s bottom line. If your counterparts do not understand your report, you know that you will have minimal support in your efforts to manage the organization’s risks effectively.

For your report, you have been asked to analyze and address the following:

  • Why is identifying risk exposures significant? What are the ramifications for organizations that fail to properly identify risks they are exposed to?
  • What are the market risks LTD encounters?
  • What business risk does LTD encounter in its day-to-day operations?
  • What compliance and human capital risks might LTD face?
  • How do risk management activities correlate with overall productivity?

The format for your report should be in the business, professional style.

Grading Rubric:

  • A thorough and accurate explanation of why identifying risk exposures is important is included, and more than two valid ramifications of failing to properly identify risks are cited. Relevant examples included.
  • Three or more valid potential risk exposures for the organization are thoroughly analyzed, detailing the source of risk for each. Relevant examples included.
  • Four or more valid day-to-day business risk exposures are thoroughly analyzed, detailing the source of risk for each. Relevant examples included.
  • Two or more valid potential compliance risk is listed and analyzed, and four or more valid potential human capital risks are listed with thorough explanations and details of the source of risk for each. Relevant examples included.
  • More than two relevant examples cited to explain how properly managed risk helps firms operate more effectively and efficiently with thorough and accurate explanations for each example.

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