Fundamentals of risk management

Question 1 – Learning Outcome 1:

You are the Risk Manager for a well established budget airline that specialises in seasonal leisure travel. One of the airline’s aircraft was involved in a near miss incident with another aircraft. This incident was filmed and the recording was subsequently released on social media.

You have been asked by the Board to investigate the effect of this incident on the public’s perception of the airline. As part of this investigation, you need to understand the influences on risk perception.

Explain, with justification, two significant issues influencing the public’s risk perception of the budget airline

following this near miss incident.

Question 2 – Learning Outcome 2:

You are the Risk Manager for KC plc, a small online direct insurer. KC plc has built its business from start-up to profitability by focusing on technology, customer data and complex information technology (IT) systems.

One of KC plc’s competitors recently experienced a data breach. Subsequently, you have been asked by the Board to review the potential impact on KC plc’s business should technology/cyber risks occur.

(a) Explain, with justification, four significant technology/cyber risks that KC plc may experience.

(b) Explain briefly one risk management action KC plc could take to mitigate each of the four risks you have

explained in (a) above.

Question 3 – Learning Outcome 3:

You are the Risk Manager for JH plc, a small financial company based in the UK. JH plc has recently been fined by the financial regulator for mis-selling products and taking unnecessary risks with client money.

JH plc’s lack of formal risk management procedures has been criticised by the regulator. The regulator has also criticised JH plc for inadequately documenting their risk appetite and risk tolerance.

The Board have instructed you to carry out a risk review. Following your review, the Board will determine a reduced level of acceptable risk appetite and risk tolerance to satisfy the regulator.

(a) Explain, with justification, two actions you could take to assist in managing the risks, that would support a

reduced level of risk appetite and risk tolerance.

(b) Explain, with justification, one recognised mechanism JH plc could adopt that will demonstrate effective risk management to the regulator.

Question 4 – Learning Outcome 4:

You are a risk manager for EN plc, a newly formed insurer. EN plc was created by the merger of two competing insurers.

You are combining the two former insurers’ risk registers into a single risk register. You are also preparing for a visit by the regulator.

The risks on the register for EN plc have yet to be categorised. The risk categories will be on the agenda for the regulator’s visit.

Explain, with justification, two significant risk categories that will be of interest to EN plc’s regulator.

Question 5 – Learning Outcome 5:

You are the Risk Manager for AL Ltd, a privately owned logistics company. AL Ltd operate a fleet of vehicles and own two purpose built warehouses (A and B) that are located in close proximity to each other.

The vehicles in the fleet, when not on the road, are garaged in warehouse A. Warehouse B includes an office that contains the information technology (IT) system for stock control.

The table below shows AL Ltd’s key assets and their values.

ASSETS ASSET VALUES (£MILLION)

Warehouse A building 3.1

Warehouse A stock & contents 2.2

Warehouse B building 2.9

Warehouse B stock & contents 1.4

IT systems and office contents 1.0

An individual fleet vehicle 0.1

Total vehicle fleet 2.0

When reviewing the risk management plan, you have identified a number of catastrophic risk events. This information will form the basis of your forthcoming discussions with AL Ltd’s insurance broker.

(a) Explain, with justification, how you will determine the asset values whilst considering potential catastrophic

risk events.

(b) Calculate, showing all your workings, the maximum possible loss should a catastrophic fire start in

warehouse A. Include in your answer the assumptions you have made.

(c) Calculate, showing all your workings, the maximum probable loss should a catastrophic fire start in

warehouse A. Include in your answer the assumptions you have made.

Question 6 – Learning Outcome 6:

You are an insurance broker. One of your clients, a food processing company, has requested an annual review meeting.

At the annual review meeting, your client informs you that they intend to put their insurance programme out to tender with other brokers, unless the cost of the insurance programme is reduced.

The food processing company has the following risk features:
A large commercial motor fleet.
Processing and distribution of frozen and chilled food products.
The data on the information technology (IT) system is backed-up off-site.
The motor fleet claim experience is poor and includes a number of high value claims.
The claims experience is very good on all other insurance classes with no individual loss over £10,000 during the last two years.

The current insurance programme has the following features:
The premium spend on the motor fleet is very high.
The deductible levels, across all insurance classes, are very low.
The business interruption insurance spend is very high.
The company has been insured by the same insurer for a number of years.

Explain, with justification, five significant actions you would advise your client to take to reduce the cost of the

insurance programme.

Question 7 – Learning Outcome 7:

You are the Risk Manager for FY plc, an electronics company that has grown rapidly. FY plc specialises in the production of mobile phones for the highly competitive mobile phone market. FY plc is focussed on profitability and delivering shareholder value in the short-term.

FY plc is about to launch a new mobile phone that they expect will give them a competitive advantage. FY plc has made a significant investment in the development of this new product with borrowed funds. The production of this new mobile phone is heavily dependent on one specialist component supplier.

(a) Identify two potential catastrophic failures that FY plc could experience following the launch of the new mobile

phone.

(b) Explain how risk management could contribute to the prevention of each of the two catastrophic failures you

have identified in (a) above.

Question 8 – Across more than one Learning Outcome:

You are the newly appointed Group Risk Manager for MC plc, a successful UK-based pharmaceutical company. MC plc has decided to expand its pharmaceutical production capability by building a new factory in an overseas country – a country that has an emerging economy.

You have been asked by the Board to recommend how an effective risk management process could manage the risks associated with the expansion into the overseas location.

(a) Identify three internal and two external key stakeholders you would engage with, in order to establish an

effective risk management process.

(b) Explain, for each of the three internal and two external stakeholders you have identified in (a) above, how these stakeholders could contribute to the risk management process of the risks involving the overseas location.

Question 9 – Across more than one Learning Outcome:

You are a risk manager for an insurer that underwrites risks in several countries, including the USA. The insurer is considering the introduction of a new global information technology (IT) system. This system will incorporate all the insurer’s data relating to its entire operation.

Whilst the new IT system is being developed, you have been asked by the IT Project Manager to identify the key sources of data from a risk management perspective that should be incorporated into the new IT system.

(a) Explain, with justification, three significant sources of information that should be considered when developing

the new IT system for the insurer.

(b) Explain the potential impact on the insurer for each of the three sources of information, you have identified in (a) above, if they are inadequately incorporated into the new IT system.

Question 10 – Across more than one Learning Outcome:

You are a newly appointed risk manager of an insurance broker that has recently merged with a competitor.

Prior to the merger, the insurance broker had an inadequate risk management process. Its competitor did not have a formal risk management process.

At a forthcoming risk management strategy planning day with the risk management team, ideas on how to improve the risk management process will be discussed.

(a) Explain, with justification, four significant actions that you could take to progress the risk maturity of the risk management process of the merged insurance broker.

(b) Describe two benefits of achieving risk maturity in the risk management process in the merged insurance

broker.

Last Updated on February 11, 2019