Page 183 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Derivatives & Risk Management

Notes The management of risk data and information is the key to success of any risk management
effort regardless of an organization's size or industry sector. Risk Management Information
Systems/Services (RMIS) are used to support expert advice and cost-effective information
management solutions around key processes such as:
1. Risk identification and assessment

2. Risk control
3. Risk financing
Typically, RMIS facilitates the consolidation of insurance related information, such as claims
from multiple sources, property values, policy information, and exposure information, into one
system. Often, Risk Management Information Services/Systems (RMIS) applies primarily to
"casualty" claims/loss data systems. Such casualty coverage's include Auto Liability, Auto Physical
Damage, Workers' Compensation, General Liability and Products Liability.
RMIS products are designed to provide their insured organizations and their brokers with basic
policy and claim information via electronic access, and most recently, via the Internet. This
information is essential for managing individual claims, identifying trends, marketing an insurance
program, loss forecasting, actuarial studies and internal loss data communication within a client
organization. They may also provide the tracking and management reporting capabilities to
enable one to monitor and control overall cost of risk in an efficient and cost-effective manner.
In the context of the acronym RMIS, the word "risk" pertains to an insured or self-insured
organization. This is important because prior to the advent of RMIS, insurance company loss
information reporting typically organized loss data around insurance policy numbers. The
historical focus on insurance policies detracted from a clear, coherent and consolidated picture
of a single customer's loss experience. The advent of RMIS in the 1980s was a breakthrough step
in the insurance industry's evolution toward persistent and focused understanding of their end-
customer needs. Typically, the best solution for your organization depends on whether it is
enhancing an existing RMIS system, ensuring the highest level of data quality, or designing and
implementing a new system while maintaining a focus on state-of-the-art technology.

13.4.1 Risk Governance Structure

Risk governance can be defined as a system for directing and controlling the management of
risk within and across an enterprise. Sound principles for risk governance warrant three key roles.
1. Businesses that originate, manage as per the laid down policy and procedures and monitor
risk.

2. Risk management department that develops policies and procedures, manage risks such
as through independent risk rating confirmations or completion for corporate exposures
and conducts analytics with the objective of improving risk management through pricing,
credit strategy, capital provided.

3. Internal audit that provides independent assurance.
In additional good risk governance practices comprise the following features:
1. Board is ultimately accountable for the risk management practice at a bank including the
setting of risk appetite and senior management is responsible for implementing risk
management practices.
2. Senior management understands all bank activities and the bank's risk management
activities including rating systems and associated management reports.

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