Defining/Categorizing Forms of Risk

LTD Acceptance is a private property and auto insurance carrier that
specializes in sports cars and motorcycles. This organization is owned
by LTD Capital, a large equity group with over 15 holdings. LTD
Acceptance is the parent company’s single largest holding as it drives
70% of total revenue. Due to the inherent risk involved in that segment
of the market, many of LTD Acceptance’s competitors do not offer
policies for sports cars or motorcycles. This market segment is
underserved which is why the organization has 20,000 active policies for
a sports car or a motorcycle.

LTD is headquartered in Houston, TX. LTD does not sell insurance
directly to the public. Instead, it uses third-party agents to sell its
policies. LTD handles all customer service needs including claims
intake, policy services, and general questions. The company operates in
four states: California, Texas, Louisiana, and Florida. Currently, LTD
does not have an active system in place to ensure that its agents are in
fact using LTD guidelines to screen potential policyholders. However,
no evidence of negligence has emerged so far as the organization has yet
to have a year in which it was not profitable. LTD has also had the
good fortune of not suffering losses because of natural disasters or
catastrophic events.

In your first days of your new role as the senior risk analyst, you
know your first task is to complete a framework for adequately
identifying risk exposures. During this process, you realize that many
of your counterparts lack the basic understanding of how to identify
risks. Your supervisor has come to you and asked for a report outlining
the importance of identifying risks to support risk management
activities and positively impact the company’s bottom line. If your
counterparts do not understand your report, you know that you will have
minimal support in your efforts to manage the organization’s risks
effectively.

For your report, you have been asked to analyze and address the following:

  • Why is identifying risk exposures significant? What are the
    ramifications for organizations that fail to properly identify risks
    they are exposed to?
  • What are the market risks LTD encounters?
  • What business risk does LTD encounter in its day-to-day operations?
  • What compliance and human capital risks might LTD face?
  • How do risk management activities correlate with overall productivity?

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