TABLE OF CONTENTS INTRODUCTION 1 CHAPTER ONE - RISK MANAGEMENT 1.1 Overview 4 1.1.1 Risk Management Defined 5 1.1.2 Why Manage Risk? 6 1.1.3 Who Should Be Responsible for Managing Risk? 7 1.1.4 Risk Management vs. Corporate Governance vs. Compliance 9 1.2 Standards, Frameworks and Governance Guidelines 11 1.2.1 Formal Risk Management Standards 12 1.2.2 Other Frameworks / Corporate Governance Guidelines 14 1.2.3 Basel II 23 1.2.4 The COSO Enterprise Risk Framework 25 1.3 Implementing Risk Management in the Organisation 28 1.3.1 Determining the Approach 29 1.3.2 Identifying Risks 30 1.3.3 Evaluation 36 1.3.3.1 Determining the True Cost of Risk Exposures 38 1.3.3.2 Risk Prioritisation 41 1.3.3.3 The Risk Register 42 1.4 Responding To Identified Risks - Risk Treatment 42 1.4.1 Accepting Risks 44 1.4.2 Avoiding Risks 47 1.4.3 Risk Mitigation and Control 48 1.4.3.1 Organisational Strategies and Management P ro c e dur e s 49 1.4.3.2 Human Resource Policies / Strategies 54 1.4.3.3 Operational Procedures / Controls 56 1.5 Risk Financing, Risk Transfer and Risk Retention 60 1.5.1 Self Retention of Risk / Self Insurance 62 1.5.2 Captive Insurance Companies 65 1.5.3 Alternative Risk Transfer / Finite Risk Insurance 70 1.5.4 Government Relief 72 1.6 Measurement and Monitoring 73 1.6.1 Control Self Assessments 73 1.6.2 Risk Management Audits 74 1.6.3 Measurement Against Key Performance Indicators (KPI s) 74 1.6.4 Measurement of the Total Cost of Risk (TCOR) 74
1.6.5 Post Incident Analysis 75 1.6.6 Board / Executive Reports 75 CHAPTER TWO - THE INSURANCE MARKET 2.1 Market Participants 80 2.1.1 Insurers 81 2.1.1.1 Unauthorised Foreign Insurers 82 2.1.2 Underwriting Agents 83 2.1.3 Insurance Agents 84 2.1.4 Insurance Brokers 84 2.1.5 Risk Management Consultants 86 2.1.6 Reinsurers 86 2.1.6.1 Treaty Reinsurance Programmes 88 2.1.6.2 Facultative Reinsurance 90 2.1.7 Reinsurance Brokers 91 2.1.8 Retrocessionaires 92 2.2 Lloyd s - A Unique Market 92 2.3 Bermuda 95 2.4 Insurance Market Cycles 96 2.4.1 Case Study - The Australian Insurance Market 99 2.4.2 Future Market Cycles 101 2.5 Insurer Solvency 104 2.5.1 Regulatory & Supervisory Bodies 105 2.5.2 Rating Agencies 107 2.5.3 Broker Security Committees 108 2.6 Insurance Broker / Insurer Selection 109 2.6.1 Timing 109 2.6.2 How Often? 110 2.6.3 Conceptual Report versus Premium Quotations 110 2.6.4 Contents of a Tender Document 111 2.6.5 Terms of Appointment 120 CHAPTER THREEE - INSURANCE OF ASSETS AND CONSEQUENTIAL LOSSES 3.1 Industrial All Risks / Industrial Special Risks 124 3.1.1 Basis of the Cover 124 3.1.2 Wording Pitfalls / Additional Covers 126 3.1.3 Business Interruption / Consequential Loss Issues 132 3.1.4 Calculating an Adequate Sum Insured 134 3.1.5 Strategies to Improve the Results of the Insurance Placement 137 3.1.6 Claims Management Strategies 139
3.2 Engineering 142 3.2.1 Basis of the Cover 143 3.2.2 Wording Pitfalls / Additional Covers 143 3.2.3 Calculating an Adequate Sum Insured 145 3.2.4 Strategies to Improve the Results of the Insurance Placement 145 3.3 Computer and Electronic Equipment 146 3.3.1 Basis of the Cover 146 3.3.2 Wording Pitfalls / Additional Covers 147 3.3.3 Calculating an Adequate Sum Insured 148 3.3.4 Strategies to Improve the Results of the Insurance Placement 149 3.4 Motor Vehicle 149 3.4.1 Basis of the Cover 150 3.4.2 Wording Pitfalls / Additional Covers 150 3.4.3 Premium / Cover Alternatives 151 3.4.4 Strategies to Improve the Results of the Insurance Placement 153 3.4.5 Claims Management Strategies 155 3.5 Fidelity Guarantee / Crime 156 3.5.1 Basis of the Cover 156 3.5.2 Wording Pitfalls / Additional Covers 157 3.5.3 Bankers Blanket Bond and Electronic Computer Crime 159 3.5.4 Strategies to Improve the Results of the Insurance Placement 160 3.6 Marine Cargo 161 3.6.1 Basis of the Cover 165 3.6.2 Wording Pitfalls / Additional Covers 167 3.6.3 Strategies to Improve the Results of the Insurance Placement 168 3.6.4 Claims Management Strategies 169 3.6.5 Marine General Average - A Simple Explanation 170 CHAPTER FOUR - LIABILITY INSURANCE PLACEMENTS 4.1 Introduction to Liability Exposures 172 4.2 Public and Product Liability 175 4.2.1 Basis of the Cover 176 4.2.2 Wording Pitfalls / Additional Covers 176 4.2.3 Calculating an Adequate Sum Insured 181 4.2.4 Excess and Umbrella Liability 182 4.2.5 Strategies to Improve the Results of the Insurance Placement 184 4.2.6 Case Study - New Zealand Accident Compensation Scheme 185 4.3 Professional Liability 188 4.3.1 Basis of the Cover 189 4.3.2 Wording Pitfalls / Additional Covers 189
4.3.3 Calculating an Adequate Sum Insured 192 4.3.4 Strategies to Improve the Results of the Insurance Placement 192 4.3.5 Claims Management Strategies 193 4.4 Directors and Officers Liability - Exposure Overview 194 4.4.1 Basis of the Cover 197 4.4.2 A B and C Coverage 197 4.4.3 Wording Pitfalls / Additional Covers 199 4.4.4 Calculating an Adequate Sum Insured 207 4.4.5 Claims Management Strategies 208 4.4.6 Strategies to Improve the Insurance Placement 209 4.4.7 Risk Management For Directors & Officers 210 4.4.8 Payment of Premium by Directors - Australia 211 4.5 Employment Practices Liability (EPL) 212 4.5.1 Basis of the Cover 212 4.5.2 Wording Pitfalls / Additional Covers 213 4.6 Superannuation / Pension Fund Trustees Liability 215 4.6.1 Basis of the Cover 216 4.6.2 Wording Pitfalls 216 4.7 Statutory Liability 218 4.7.1 Basis of the Cover 218 4.8 Prospectus Liability 219 4.8.1 Basis of the Cover 219 4.9 Warranty and Indemnity Insurance 220 4.9.1 Basis of the Cover 220 4.10 Motor Vehicle Liabilities 221 4.10.1 Summary of Various Arrangements 222 4.10.2 CTP Gap Exposures 222 4.10.3 Overview of CTP Arrangements in the Region 223 4.11 Marine Liabilities 230 4.11.1 Carriers Liability 230 4.11.2 Freight Forwarders Liability 231 4.11.3 Stevedores Liability / Terminal Operators Liability Wharfingers Liability 231 4.11.4 Charterers Liability 232 4.11.5 Marina Operators Liability 233 4.11.6 Port and Harbour Authorities Liability 234 CHAPTER FIVE - INSURANCE OF HUMAN RESOURCES 5.1 Workers Compensation 238
5.1.1 Differences Between Jurisdictions 238 5.1.2 Coverage Issues 239 5.2 Corporate Travel / Personal Accident 241 5.2.1 Basis of the Cover 242 5.2.2 Wording Pitfalls / Additional Covers 244 5.2.3 Calculating an Adequate Sum Insured 245 5.3 Keyman Insurance 246 5.3.1 Basis of the cover 247 5.3.2 Taxation Issues 247 CHAPTER SIX - OTHER CLASSES OF INSURANCE 6.1 ecommerce Risks 250 6.1.1 Exposure Overview 250 6.1.2 Some Reasons Why Traditional Insurance Policies Will Not Respond to Emerging Risk Exposures 253 6.1.3 Basis of the Cover 255 6.1.4 Wording Pitfalls / Additional Covers 258 6.1.5 Information Used By Insurers to Assess Your Risks 260 6.2 Product Recall / Contaminated Products Insurance 262 6.2.1 Basis of the Cover 263 6.3 Kidnap, Ransom and Extortion 265 6.3.2 Basis of the Cover 265 6.4 Environmental Impairment Insurance 268 6.4.1 Basis of the Cover 269 6.5 Construction 271 6.5.1 Construction All Risks (CAR) 274 6.5.1.1 CAR Wording Pitfalls / Additional Covers 274 6.5.2 Advance Loss Of Profits 276 6.5.2.1 ALOP Wording Pitfalls / Additional Covers 279 6.5.3 Project Specific Professional Indemnity Insurance 281 6.5.4 Force Majeure / Liquidated Damages 282 6.5.5 Contractors Plant and Equipment 283 6.5.6 Construction Defects Liability 284 6.6 Defamation 285 6.7 Trade Credit 288 6.8 Political Risks / Expropriation 289 6.9 Insurance Bonds 291 6.10 Loss of Title Insurance 292
6.11 Tax Audit Insurance 293 6.12 Contingency Insurance 294 6.12.1 Events Cancellation and Abandonment 294 6.12.2 Prize Indemnity / Performance Bonus Indemnity 296 6.12.3 Film Insurance 297 6.13 Terrorism Insurance 297 6.13.1 Australia - Terrorism Insurance Act 298 6.13.2 Austria - Österreichischer Versicherungspool zur Deckung von Terrorrisiken 300 6.13.3 France - Gestion de l Assurance et ed la Reassurance des Risques Attentas et Actes de Terrorism (GAREAT) 301 6.13.4 Germany - Extremus Versicherungs-AG (Extremus) 301 6.13.5 Israel - Property Tax and Compensation Fund (PTCF) 302 6.13.6 Netherlands - Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden (NHT) 302 6.13.7 South Africa - South African Special Risks Insurance Association (SASRIA) 303 6.13.8 Spain - Consorcio de Compensación de Seguros (CCS) 303 6.13.9 United Kingdom - Pool Re 304 6.13.10 USA - Terrorism Risk Insurance Act (TRIA) and Terrorism Insurance Extension Act (TRIEA) 304 6.13.11 Commercial Terrorism Insurance Coverage 305 CHAPTER SEVEN - INDUSTRY REGULATION 7.1 Overview 310 7.2 Duties of an Insurance Broker 310 7.3 Government Regulation - Australia 311 7.3.1 Financial Services Reform Act (2001) / Corporations Act (2001) 314 7.3.2 Insurance Contracts Act (1984) 317 7.3.3 Insurance Act 320 7.3.4 Unauthorised Foreign Insurers (UFI s) / Direct Offshore Foreign Insurers (DOFI s) 321 7.3.5 Marine Insurance Act 1909 322 7.3.6 Trade Practices Act 1974 322 7.3.7 Privacy Act 1988 323 7.3.8 Spam Act 2003 327 7.4 Government Regulation - Regional Comparison 328 GLOSSARY OF INSURANCE TERMS 341
BIBLIOGRAPHY 361 INDEX 371