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Well developed Answer A. How do Risk Managers assist in protecting the financial assets of their...

Well developed Answer

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.

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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
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