What is Risk?

An uncertain event or condition which if occurs would have an

undefined or unknown impact on achievement of objective.
 RISK MANAGEMENT PROCESS

Identify the risks that the

Identifying business is exposed to in its
the potential operating environment.
Risk

Monitoring
Not all risks can be and Analysing
Reviewing the Risk Scope the risk must
eliminated.
the Risk be determined.

Risks need to be
ranked and
Risk needs to be Treating the Evaluating prioritized.
eliminated or Risk the Risk  Qualitative Risk
controlled as much as  Quantitative Risk.
possible.
 TYPES OF RISK
SYSTEMATIC UNSYSTEMATIC SPECULATIVE
PURE RISK
RISK RISK RISK

No Prospect of gain , only Speculative risk

 Uncontrollable by  Controllable by an Loss. Eg – Fire involves both the
an organization organization TYPES possibility of gain as
 Macro in nature.  Micro in nature.  Property Damage Risk – well as possibility of
Risk of loss to personal loss.
TYPES TYPES belongings due to theft,
 Interest Rate Risk  Business Risk accident, fire and natural These are generally not
 Market Risk  Financial Risk disasters. Insurable.
 Purchasing Power  Operational Risk  Liability Risk – Risk of
Risk economic loss resulting
from your being held
responsible for harming
others for their property
 Methods of Handling Risk

Risk Risk Risk Risk

Transferring Acceptance Controlling
Avoidance

Risk avoidance means To accept or retain the Risk control

Transferring the risk to
completely eliminating risk and to assume all involves implementing
another party and
any hazard that might financial responsibility measures to reduce the
shifting the financial
harm the organization, for the risk. probability or impact of
responsibility to that
its assets, or its potential risks.
party.
stakeholders. For Example :
For Example : Insurance
For Example : Not Controlling the risk of
Investing in the stock fire in a cotton godown
market, to avoid by banning smoking in
financial loss. godown.
 What is Insurance ?
 An insurance is a legal agreement between an insurer
(insurance company) and an insured (individual), in
which an insured receives financial protection from an
insurer for the losses he may suffer under specific
circumstances.

 Insurance is a practice or arrangement by which

company or government agency provides a guarantee
of compensation for specified loss, damage, illness or
death in return for a payment of a premium.
 TYPES OF
INSURANCE

GENERAL
LIFE INSURANCE
INSURANCE

TERM LIFE
HEALTH INSURANCE INSURANCE

MOTOR INSURANCE PENSION PLANS

UNIT LINKED
TRAVEL INSURANCE
ISURANCE PLAN

HOME INSURANCE MONEY BACK

POLICY

FIRE INSURANCE CHILD PLANS

 PRINCIPLES OF INSURANCE
UTMOST GOOD FAITH PROXIMATE CAUSE INSURABLE INTEREST INDEMNITY

Both the party must act
in absolute good faith
& provide all relevant
information to each
other
when the loss is the result of
two or more causes. The
insurance company will find
the nearest cause of loss to
the property
Insurance is done only for
Insurable interest is a
the coverage of the loss;
type of investment that
hence insured should not
protects anything subject make any profit from the
to a financial loss. insurance contract

SUBROGATION CONTRIBUTION LOSS MINIMIZATION

The insured is obligated

Subrogation means one
party stands in for
another.
If the same risk is insured
with multiple insurers, each
will contribute proportionally
to the loss in order to avoid
compensation
to take reasonable steps
to minimize or mitigate
the loss to the insured
property.
 What is KYC ?
 KYC means Know Your Customer and
sometimes Know Your Client.
 KYC or KYC check is the mandatory process of
identifying and verifying the client's identity
when opening an account and periodically over
time.
 In other words, banks must ensure that their
clients are genuinely who they claim to be.
 Why is KYC Important ?

Financial institutions gather vital information related to the

identity of a customer through KYC. The KYC procedure is
mandatory for ensuring proper legal vigilance to minimize
chances of fraud or money laundering.
The basic details that are available through KYC are used to:
 Ensure that the person availing the policy is a genuine
customer.
 Create a customer profile to better target and sell products.
 Get basic customer details to contact a policyholder in times
of need.
 What is Anti - Money Laundering ?
 Anti-Money Laundering (AML) refers to the
collection of laws, processes, and
regulations that prevent illegally obtained
money from entering the financial system.

 AML targets a wide variety of crimes, from

corruption and tax fraud to market
manipulation and illicit trade, as well as
efforts to mask these activities as the source
of money.
The AML Guidelines for insurers
Insurers
1.New customers: Insurers are now required to follow identification
procedures, ie, KYC for all customers at the time of commencement of the
account-based relationship with the customer, and monitor their
transactions on an on-going basis. Earlier, for certain kinds of policies,
client due diligence was required to be followed at the time of
claim/payout stage.
2.Existing customers: If KYC documents are not available for existing clients,
then they are required to be collected within 2 years (for low-risk
customers) and within 1 year (for high-risk customers).
3.Ongoing Due Diligence: Besides verification of the identity of the
customer at the time of initial issuance of the contract, risk assessment
and on-going due diligence is suggested to be carried out at times when
additional/ subsequent remittances are made.
How Does AML Work in Banking?
Customer and transaction
Know Your Customer (KYC)
screening

Customer due diligence (CDD) Suspicious activity reporting

Know Your Customer (KYC)

Know Your Customer (KYC)involves identifying and verifying a customer’s

identity when they open a bank account. Mandatory for banks, KYC is the first
critical step in an AML program.
In the KYC procedure, banks collect customer identification and check its
accuracy. Banks make sure that a customer’s digital identity matches their real-
world identity, proving they are who they say they are
 Customer and Transaction
Customer Due Diligence Suspicious Activity Reporting
Screening

Banks implement a control process

Banks and financial institutions
called customer due diligence
generally have a broad customer Money laundering investigations
(CDD), through which relevant
portfolio. The transactions by law enforcement agencies often
information of a customer’s profile
mediated by these banks are not involve scrutinizing financial
is collected and assessed for
limited to their own customers. records for suspicious activity or
potential money laundering or
For Eg, one customer of a bank can inconsistency. In the current
terrorist financing risk. Although
transfer money or make payments regulatory environment, extensive
CDD procedures vary from country
to another bank’s customer. records are kept on every
to country, there is only one goal: to
Throughout the day, an average- significant financial transaction to
detect risks.
sized bank mediates thousands of help law enforcement trace a crime
After the KYC control process,
money transfers. to its perpetrators. It’s critical for
banks apply risk assessment to their
Banks are obligated to monitor and banks to have an immutable audit
new customers. Customer
control the people involved in trail that regulators can trust.
information is checked and screened
money transfer transactions. It is a
against several online databases,
major crime for a bank to mediate
including politically exposed
payments sent to a sanctioned or
persons (PEPs), government records,
banned person.
watchlists and sanctions screening.