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Understanding the Risks & Liberating the Business. Michael Jensen, Head of Commercial Lines, Arabia The Business Of Governance, 4 th September 2013. About AIG Operating in 3 regions. About AIG Facts and Figures. Risks for the SME. What is your approach to Risk Management ?

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understanding the risks liberating the business

Understanding the Risks & Liberating the Business

Michael Jensen, Head of Commercial Lines, Arabia

The Business Of Governance, 4th September 2013

risks for the sme
Risks for the SME

What is your approach to Risk Management ?

  • The key question for any organisation – for an SME it is critical to understand if risk management is applicable or practical for your business

The risks match the profile of your business

  • By sector –
    • Food and Beverage – perishable goods and quality standards
    • Medical or clinical establishments – treatment risks, high value of medical equipment
    • Schools & colleges – liability to students, staff & visitors
  • By distribution & service mode
    • Business requiring offices/ retail outlet vs Internet based model
    • Holding Stock, warehouse distribution
    • With ongoing commitments such as rent, salaries, bank loans
  • By location
    • Here in UAE – are you onshore or offshore ?
    • Difference in licenses, legal system and regulations
business is the risk
Business is the Risk

Your business model strategy and marketplace can expose you to a wide range of risks

  • Cash Flow – Clients/ Customers not paying on time = monies being due, challenges to match your outgoings
  • Errors & omissions – staff may have multiple functions, make mistakes = customer dissatisfaction, loss, reputational damage
  • Cyber attack On your website, customer information, banking information of clients = liability to customers, breach of data privacy or protection
understand the downside risks
Understand the ‘Downside’ Risks
  • Every SME needs to understand the ‘downside’ risks for their business
  • The key risks that may cause business disruption and/or business failure
  • Complete an assessment of top 5 to 10 risks for your business, both internal & external. Examples may include
    • Economic downturn
    • Outsourced invoicing with receivables collected and held by a third party
    • Reliance on one key person for your business to be successful
    • Large values of stock held in one location
    • This assessment can be done internally with your staff and management team, but consider the value of an external third party though – bringing cross section experience, deep industry knowledge and challenge to your corporate approach
proactive approach to risk
Proactive Approach to Risk
  • From your top 5 to 10 risks, first consider the likelihoodof the risk occurring
    • could possibly happen,
    • might be likely to happen,
    • little chance of happening
  • In addition, consider the possible impacts to your business including
    • Financial impact
    • Business collapse
    • Reputational damage
    • Loss of licenses
  • This is your overall Risk Assessment.
  • You may then decide to
  • accept low risks that with low impact implications to your business and
  • determine high risks that will have the most unacceptable impact on your business that would need a risk management action plan
risk management
Risk Management
  • What can you influence or change?
  • Can you reduce the impact, the likelihood or both?
  • Key factor to consider before any action is Cost vs Benefit
  • Spending US$50,000 to manage a risk that might have a maximum consequence of US$5,000 and no reputational damage may not be good business sense
  • This will provide you with a risk management action plan
  • Actions in the plan to be addressed in timely manner, proactively before risks become a reality
risk transfer
Risk Transfer

Following review of what can be managed and makes good business sense to action, are there still risks that the business could not recover from, or might have difficulty recovering from?

Can you transfer some of the risk to another party?

  • Insurance ( of course) is one important risk transfer option
  • Others may involve pooling funds from many to pay for the losses that some may incur

Risk Transfer though does come at a cost!

change and risk
Change and Risk

Once you have understood the risks to your business, and the ways you plan to manage these risks you need to consider the future

  • What if you redefine or change your business strategy?
  • What if you expand into different markets or countries?
  • Are you considering an IPO?
  • Are there new external factors that are going to impact your business?

All of these factors need to be considered for the future impact on your business and your risks

  • The investment in risk management does not need to be extensive to be effective but it does need to follow a living, evolving approach
in conclusion
In Conclusion

A recent survey revealed that more than 48% of investors are willing to pay additional premium over stock prices for companies known to implement sound corporate governance practices…….. .as opposed to other companies which may have same level of profitability but characterized with inefficient management or a record of poor governance practices……..

The message is clear – those SME’s that have a commitment to

  • risk management
  • effective corporate governance (which you will be hearing about in detail from our next speaker)

are going to be the companies that gain the funding and support of lenders and investors alike.

Effective Risk Management canLiberate your Business

American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries.. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in theUnited States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange.

Additional information about AIG can be found at www.aig.com | YouTube: www.youtube.com/aig | Twitter: @AIG_LatestNews | LinkedIn: http://www.linkedin.com/company/aig

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds.