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A. How do Risk Managers assist in protecting the financial assets of their organizations against devasting losses? Also, describe two risk insurance models and the risk retention concept.

Answer 1

A company is prone to various risks but the impact of a financial risk can be quite dreadful. For this very reason, financial risk management is considered quite critical in companies. A financial risk manager needs to comprehensively evaluate the company’s conditions for identifying the various financial risks, which can affect it. Some of the common financial risks are:

• Market risk
• Liquidity Risk
• Credit Risk

The primary factors which make the company prone to financial risks are:

• Instability in the financial market
• Government regulations
• Economic factors of the region
• Legal interventions of the region
• Internal factors of the company

The role of a risk manager is quite crucial. Given below are his primary responsibilities for protecting the company from any kind of financial risk:

• Conduct a thorough risk assessment, identifying the probable financial risks
• Conduct an impact assessment and categorize the risks, based on their influence and intensity
• Identify the factors – both external and internal which may make the company prone to suffer financial risks
• Develop strategies and plan to address the risk
• Develop insurance model to safeguard company’s financial interests in future

Two risk insurance models used by companies are as follows:

• Hotspot Profiling of Risks model: Under this model, the financial risk profiling of the company is conducted. This helps in segregating the risks based on their impact on the overall company.
• Risk Predictive Model: Various companies have been capitalizing on machine learning and analytical models to predict the risks which can affect the company in future