RISK AND INSURANCE MANAGEMENT CASE ANALYSIS

1. OTIS is exposed to the following risks in the Hyderabad Metro Project:

• Liability loss exposure- Defective product, liability arising from failure of the products such as
injury or death of a commuter.

• Intangible Property loss- Damage to the company’s public image & loss of Goodwill and market
reputation.

2. Steps in the Risk Management Process:

i. Identify the Loss Exposures :It’s the first step in managing risk. The company must identify all
major and minor loss exposures. It involves an exhaustive review of all potential losses.

ii. Measure and Analyze the loss exposures :It’s important to measure and quantify the loss
exposures in order to manage them properly, it requires an estimation of the frequency and severity of
the loss. Once the risk manager of the company estimates the frequency and severity of the loss for
each type of loss exposure, the various loss exposures can be ranked according to their relative
importance.

iii. Selecting the appropriate combination of Techniques for treating loss exposures:

In this step the risk manager of the firm must select the appropriate combination of techniques for
treating the loss exposures. These techniques can be classified broadly into 2 types- Risk Control and
Risk Finance.

RISK CONTROL consists of techniques for reducing the frequency or severity of losses. Major techniques
are:

• Avoidance

• Loss Prevention

• Loss Reduction

• Duplication

• Separation

• Diversification

RISK FINANCE it refers to techniques that provide for the payment of losses after they occur. Major risk
financing techniques are:

• Retention

• Non insurance Transfers

• Commercial Insurance

iv. Implement and Monitoring the Risk Management Program- The 4th step is to implement and
monitoring the risk management program . This step begins with management policy statement. This
statement outlines the risk management objectives of the firm as well as company policy with respect to
treatment of loss exposures. In addition, a Risk management manual may be developed and used in the
program. The manual describes in detail the risk management program of the firm and can be a very
useful tool for training employees.

3. Recommended Risk Management Techniques :

• Loss Prevention measures must be employed by OTIS so that the loss exposures are kept at by.
They can do so by maintaining the product through regular servicing, prompt repairs of any issues and
quality checks by senior officials. This way the chances of machines failure can be prevented or reduced
to the maximum possible point. The company can also display safety measure boards before boarding
the escalators and inside the elevators so that the commuters can take necessary precautions on their
behalf.

• Commercial Insurance must be taken by the firm as the frequency of the loss exposure is low
but the severity is very high and can cause damage to the firm’s image in the market and society. The
terms of insurance can be decided by the risk manager and negotiated with the insurer to meet the
firm’s needs. This commercial insurance can help the firm in paying for any kind of loss to the third party
(i.e. injured commuters).