655 - Risk Management: Advanced Diploma in Insurance

Examination Guide
655 – Risk management
Advanced Diploma in Insurance
April 2011 Examination Guide
SPECIAL NOTICE
Candidates entered for the October 2011 examination should study this Examination Guide
carefully in order to prepare themselves for the examination.
Practice in answering the questions is highly desirable and should be considered a critical
part of a properly planned programme of examination preparation.
655 April 2011 EG

655 Examination Guide
655 – Risk management
Contents
Important information – Advanced Diploma assessment 3
Examiner comments 6
Question paper 7
Test Specification 11
Marking scheme 12
Example of good answers 14
Published September 2011

The Chartered Insurance Institute
20 Aldermanbury, London EC2V 7HY
Telephone: 020 8989 8464

Fax: 020 8530 3052
Email: customer.serv@cii.co.uk
© 2011 The Chartered Insurance Institute
2
IMPORTANT INFORMATION - ADVANCED DIPLOMA

ASSESSMENT
Format of Exam
The exam will be marked out of a total of 160 marks and you will be allowed 3 hours to complete it. You will
be asked to attempt 1 compulsory case-study which is worth 80 marks and select 2 scenarios from a choice
of 3 worth 40 marks each. As a guide, you should allow 90 minutes for the case-study and 45 minutes for
each of the scenarios.
Before the examination

Obtain a copy of the syllabus which is available from: www.cii.co.uk.
Study the syllabus carefully and look at both the Learning Outcomes and the Indicative Content. The
Indicative Content has a knowledge rating of 1, 2 or 3. These numbers give an indication of the scope and
depth of study required as follows:
1 General background awareness necessary
2 Requires a knowledge of the major elements of procedures or concepts and their uses
Requires the ability to evaluate concepts, issues, policies and procedures, together with an
3 understanding of associated aspects of these items and their application to various
situations
Very often, solutions to problems will require the application of various pieces of information, therefore a
good understanding of the Learning Outcomes is required. You should also be able to integrate various
ideas, including information that may be of value and form conclusions or make recommendations. The
exam thus tests across Learning Outcomes.
Make full use of RevisionMate and the reading list shown on the syllabus as 10% of the mark is allocated for
additional reading as well as the use of relevant workplace examples within the exams.
This guide includes the exam questions and example good answers from the April exam. Answers may,
however, vary depending on how knowledge and reasoning are expressed.
3
During the examination
Read the question carefully. To ensure that your thoughts are focused, it may be useful to highlight exactly
what is being asked in the question.
It may be useful to sketch a mind-map to clarify the scope and depth of the information being asked prior to
answering the question. It may also be useful to align your mind-map with the question to ensure that you
have correctly interpreted the question being asked.
Consider the format that is required in your answer. For example, the question may ask to write a report,
draft a presentation, draft a speech or analyse information and make conclusions/recommendations. The
format of your answer should match that which is asked for in the question.
A report normally consists of the following:

• A brief introduction (how you will approach the topic)
• The discussion (wherein you state and examine the information)
• The conclusion (wherein you can make possible recommendations/solutions).
A draft speech or presentation normally consists of the following:

• Opening comments
• Body of the speech (wherein you logically explore and interpret the information)
• Closing comments (including possible recommendations/solutions).
Take careful note of the verbs being used in the question as these indicate the scope and depth of the
answer required.
An examination is about exploring a topic in some detail (this could include

Examine
identifying positive and negative features of the topic)
To analyse something in detail is to discover the meaning or essential features

Analyse
and to draw conclusions
Reviewing involves making a judgement about a topic which relies upon a

Review combination of evidence and some kind of theory (if one exists), construct or
practice in relation to the topic
An evaluation is a review that is more focussed (narrower area, but in more

Evaluate
detail)
Assessment means considering individual components in depth and arriving at

Assess
a conclusion by extracting value from those components
In your answer, you should consider the way that the exam will be marked which includes the following 4
elements:
Your knowledge and understanding of the subject area, including the accuracy and completion of
your facts. This has a mark weighting of 40%.
The way that you analysed or examined the subject area. This has a mark weighting of 40%.
The way that you structured your answer (is the information arranged logically? - is your reasoning
sound?). This has a mark weighting of 10%.
Evidence that you used relevant examples and undertaken further reading to support your answer.
This has a mark weighting of 10%.
4
Your argument should be clearly stated and your reasoning should be logical and sound. Remember that
the examiner is only able to understand your thought process based on the information that you include in
your answer. The test is thus – if someone else reads this answer will they be able to understand what I am
trying to say? Use sub-headings and bullet points where necessary to clarify your answer and to logically
group your information. Remember though that bullet points alone are insufficient as the reader will not be
able to follow your thought process.
It may be best to first approach answering the questions relating to knowledge areas that you feel
comfortable with and then to go on to attempt those questions relating knowledge areas that you feel less
comfortable with.
Once you have completed your answer, check that your answer matches with what is actually being asked in
the question.
Remember that the examiner must be able to read your handwriting. You will not lose marks if your
handwriting is untidy, provided that it is legible.
After the examination

All Advanced Diploma in Insurance examiners, one of whom will mark your answer book, are either active
practitioners in the insurance industry or are experts in the subject area. They have been specially trained to
mark answer books using a detailed marking scheme: the examples of good answers in this guide are based
on this marking scheme.
The marking of each examiner is closely monitored throughout the marking period and all marked answer
books are carefully checked. This process means that all answer books are marked to the same standard.
After all the answer books have been marked, a moderation meeting is held, at which all available statistical
information is considered, together with the views of the Senior Examiner for that unit and other assessment
experts. At the meeting, a pass mark is set to ensure that the standard of knowledge and skills required to
gain a pass in the exam is comparable with that of previous question papers. All candidates at or above the
agreed pass mark will pass: the CII does not operate a quota system whereby only a fixed percentage of
candidates can pass an exam.
5
EXAMINER’S COMMENTS
Question 1
Many candidates produced very detailed answers to the 1st part of the question i.e. requesting them to
explain the risk management process and many then linked it in to the refurbishment project, explaining
how the risk management process would apply at each stage of the feasibility study for the project. The
2nd part of the question dealt with the potential risks and rewards that the refurbishment project could bring
and there were many good answers here where candidates demonstrated that they had read the study
text and had other experience or reading. Some candidates just mentioned risk types such as operational
risk, financial risk, legal and compliance risks rather than drilling down into specific risks and did so again
under the 3rd part of the question; the top five potential risks. Marks were still awarded, but more marks
were awarded for specific risks and particularly those that pertained to the actual refurbishment project.
Many candidates concentrated too much on the jewellery store existing unit in the existing shopping
centre and only mentioned theft of jewellery and forgot about the attractiveness of construction sites, plant
and tools from the theft point of view.
The area where most improvement was needed was the final part i.e. the candidate’s recommendation
whether the project should go ahead – some forgot to cover it at all, others wrote a sentence or two or a
very brief paragraph; a few candidates did produce their recommendation and convincing arguments for
proceeding with the project or not. Also, very little evidence was shown of examples to support
candidate’s answers or evidence of further reading. There was little mention of risk registers but
candidates did manage to incorporate a risk register into their answers.
Question 2
Again, many candidates constructed their answers well in the style of a presentation, commencing with a
brief introduction on what a business continuity plan (BCP) was, then listing various examples of when it
could prove useful within a manufacturing organisation in terms of incident and issues, including product
recall and many relevant scenarios such as problems with the supply chain as well as the more standard
large fire or catastrophe scenario. The majority of candidates provided a good list of benefits with
examples of actual incidents. Many candidates mentioned Toyota, the recent Japanese earthquake and
tsunami and the Fukushima nuclear plant, the BP oil spillage in the USA etc amongst others and some
possible incidents that could befall a motor parts manufacturer, for example, and how a BCP would have
improved their response, preparedness and return to business as usual.
The area of the question where some improvements could have been made was in the content of the
BCP – some candidates produced good answers and listed many areas for inclusion, communication lists,
prompts, schedules, media response, alternative site information, back up IT and other facilities,
identification of the facilities recovery team and/or business continuity team etc.
Question 3
The majority of candidates did not have a problem defining risk appetite and the factors affecting the
levels of risk tolerance within different organisations. They were also able to supply a credible list of
stakeholders, some even produced separate lists and rationales for stakeholders under each of the credit
risk, investment risk and reputation risk headings. There were a good number of candidates who
produced matrices, diagrammatical illustrations of probability and severity/impact with explanatory keys to
each.
Question 4
This question identified those candidates who had studied and were able to provide a detailed answer
about the Health and Safety at Work Act and its provisions/conditions and the Health and Safety
Executive, rather than just state that there were statutory and regulatory implications for an organisation
with a poor work place accident record. Many candidates answered this question fairly well. They were
able to list, in detail, the various implications and risks in an increasing number of work place accidents,
many remembered to specifically reference issues relating to the condition of vibration white finger (VWF),
although others went into detail about other types of work place accidents, stress, repetitive strain injury,
pandemics etc and forgot to mention VWF. The recommendations for improvements was probably the
best answered part of the question, with many good and credible ideas to improve the work place record
and increase safety for employees using machinery.
6
6
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Unit 655 – Riisk ma
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April 2011 exam
mination
Instructio
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• Three hours are alllowed for thiss paper.
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• Read the
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• e the informa
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• You arre allowed to write on the

e inside page es of this que
estion paper, but you musst NOT write
e your name,,
candidate number, PIN or any other
o identificcation anywh
here on this question
q pap
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• The ansswer book and this quesstion paper must

m both be
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before you
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F omply with this regulation will res
to co sult in yourr
paper not
n being marked and you y may be prevented fromf enterin
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7
Unit 655 – Risk management

Instructions to candidates
Read the instructions below before answering any questions
• Three hours are allowed for this paper which carries a total of 160 marks, as follows:
Part I 1 compulsory question (case study) 80 marks

Part II 2 questions selected from 3 (scenarios) 80 marks
• You should answer the question in Part I, and two out of the three questions in Part II.
• You are advised to spend no more than 90 minutes on Part I and 45 minutes on each question
selected in Part II.
• It is recommended that you spend 15 minutes reading and planning your answer to the case
study and 75 minutes answering it, and that you spend 10 minutes reading and planning your
answer to each scenario and 35 minutes answering it.
• A case study tests extensively across syllabus learning outcomes, whilst a scenario will be more
focused on specific learning outcomes.
• Read carefully all questions and information provided before starting to answer. Your answer will be
marked strictly in accordance with the question set.
• You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you
should cross through these notes before you hand in the booklet.
• It is important to show each step in any calculation, even if you have used a calculator.
• If you bring a calculator into the examination room, it must be a silent battery or solar-powered
non-programmable calculator. The use of electronic equipment capable of being programmed to hold
alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific
calculator, provided it meets these requirements.
• Answer each question on a new page. If a question has more than one part, leave six lines blank after
each part.
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PART I
Case study.
This question is worth 80 marks.
To gain maximum marks you should include relevant examples and further reading in your answer.
1. Case study
You are the Risk Manager for a property management company that owns and manages
a large shopping centre in an inner urban location. The mall was built in the 1970’s and
is now looking dated and requires major refurbishment. There are 70 units available of
which 50 are currently occupied by tenants from a wide range of retail businesses,
including a jewellery store and ageing food retail outlets. There are unoccupied retail
units due to expiring leases and the recession. The shortage of car parking space at the
centre is considered by the centre management to be a factor in the loss of trade and
number of visitors to the centre. This is also a reason why some tenants have decided
not to renew their leases and have moved their businesses elsewhere.
The infrastructure of the road network within the town centre has changed and
pedestrianisation of the high street has led to restrictions on traffic within the town centre,
which means that the shopping centre is not as easily reached by car. There is an
opportunity to relocate the car park to the rear of the shopping centre which is out in the
open. This could improve access to the site by shoppers in cars, as there is road access
available here.
There are, however, regular bus services which stop outside the shopping centre and it
is within easy access of the railway station.
The refurbishment works will mean some structural repairs, rewiring and ensuring that
the shopping centre complies with recent structural and electrical regulations and
statutory and local authority requirements.
You and your risk management committee have been asked to be part of the
refurbishment project team and to supply information to assist in the formulation of the
project, with particular emphasis on operational and financial risk.
Question
Prepare a report to the Board including the following:
• Outline the risk management process and how this process can be applied to the
refurbishment project.
• Identify the potential risks and rewards in undertaking such a major refurbishment
project and explain how you arrived at your conclusions.
• Analyse the top five potential risks that the project may incur, their impact and how
they would be handled. Based on your analysis make recommendations as to
whether this refurbishment should go ahead ensuring that you fully explain the
reasons behind your recommendations. (80)
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PART II
Scenarios.
Answer TWO of the following THREE questions.
Each question is worth 40 marks.
To gain maximum marks you should include relevant examples and further reading in your answer.
2. Scenario
You are an Account Executive for a firm of national insurance brokers, which provide risk
management advice to their clients. You have special responsibility for clients in the
manufacturing sector, and you have been asked to make a presentation to the chief
executive officers of your clients on business continuity planning.
Question
Examine the benefits of an up to date and effective business continuity plan ensuring
that you include an explanation of relevant content specific to your manufacturing clients. (40)
3. Scenario
A large financial services company is looking to develop a risk appetite policy statement
to support its risk management and corporate governance activities. You are one of the
company’s risk professionals and have been asked to draft this statement, however
before you do so you need to put a plan together outlining how you are going to put this
statement together and why.
Note that for this initial statement the company is not seeking to cover all of its risks, just
its credit, investment and reputation risks.
Question
Draft your plan making sure that you cover the following:
• an appropriate definition of risk appetite and an explanation about why a risk
appetite statement is required;
• identification of stakeholders you should consider when setting your company’s
appetite for credit, investment and reputation risks;
• explain how you intend to express the company’s appetite/tolerance for these risks
(e.g. in terms of probability and impact limits, qualitative statements, ratings, etc). (40)
4. Scenario
You are the Health and Safety Manager for a manufacturing company, specialising in the
production of specialist components for the motor industry. Your company has recently
seen a rise in workplace accidents (mainly machine related injuries) and health problems
(primarily vibration white finger VWF) and you are keen to convince your Board of
Directors to improve the management of these workplace risks.
Question
Draft a report to your Board of Directors:
• describing the potential regulatory, operational and financial risks arising from a
poor workplace risk record;
• recommending how the company should improve the management of its work place
risks – paying particular attention to the key areas of risk that are affecting it at the
current time (machine related injuries and VWF). (40)
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TEST SPECIFICATION
April 2011 Examination – 655 Risk management

Question Syllabus learning outcome(s) examined
1 1 - Understand the context of risk management
2 - Understand and apply risk identification and prioritisation processes
3 - Understand and apply methods of risk assessment and analysis
4 - Understand and apply risk controlling techniques
6 - Understand and apply the methods of risk monitoring and review
3 - Understand and apply methods of risk assessment and analysis
6 - Understand and apply the methods of risk monitoring and review
2 - Understand and apply risk identification and prioritisation processes
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NOTE ON MARKING SCHEME AND EXAMPLES OF GOOD ANSWERS

To achieve maximum marks the marking scheme must be read in conjunction with the guidance
shown in the QUESTION PAPER and the EXAMPLES OF GOOD ANSWERS
Marking scheme
CASE STUDY MARK GRID
Knowledge and Understanding (includes accuracy and completeness of facts)

Mark Weighting 40%
Most points of content
Almost all points of
identified and Some points of content Few points of content
content identified and
described in some identified identified
clearly explained
depth
25-32 marks 17-24 marks 9-16 marks 8 marks or fewer
Application and Analysis

Mark Weighting 40%
Essential Restricted
Deep understanding of Little understanding of
understanding of understanding of the
the underlying concepts the underlying concepts
underlying concepts underlying concepts
and their application and their application
shown shown
shown shown
Coherent Structure (Logical structure – logic in terms of argument and reasoning, order of
information, completeness of information)
Mark Weighting 10%
Answer is coherently Answer is mostly Answer is limited in Answer is insufficiently
structured coherently structured coherent structure coherently structured
Evidence of the use of Relevant Examples and/or Further Reading to Support Answers
Mark Weighting 10%
Considerable
Evidence Little evidence
evidence Very little evidence
demonstrated of the demonstrated of the
demonstrated of the demonstrated of the use
use of relevant use of relevant
use of relevant of relevant examples
examples and/or examples and/or
examples and/or and/or further reading
further reading further reading
further reading
12
SCENARIO MARK GRID
Knowledge and Understanding (includes accuracy and completeness of facts)

Mark Weighting 40%
Most points of content
Almost all points of
identified and Some points of content Few points of content
content identified and
described in some identified identified
clearly explained
depth
Application and Analysis

Mark Weighting 40%
Essential Restricted
Deep understanding of Little understanding of
understanding of understanding of the
the underlying concepts the underlying concepts
underlying concepts underlying concepts
shown shown
shown shown
Coherent Structure (Logical structure – logic in terms of argument and reasoning, order of
information, completeness of information)
Mark Weighting 10%
Answer is coherently Answer is mostly Answer is limited in Answer is insufficiently
structured coherently structured coherent structure coherently structured
4 marks 3 marks 2 marks 1 mark or zero
Evidence of the use of Relevant Examples and/or Further Reading to Support Answers
Mark Weighting 10%
Considerable
Evidence Little evidence
evidence Very little evidence
demonstrated of the demonstrated of the
demonstrated of the demonstrated of the use
use of relevant use of relevant
use of relevant of relevant examples
examples and/or examples and/or
examples and/or and/or further reading
further reading further reading
further reading
4 marks 3 marks 2 marks 1 mark or zero
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Example of a good answer for Part I (Case study)
Question 1
REPORT TO BOARD ON XYZ SHOPPING MALL, NEWTOWN AND PROPOSED REFURBISHMENT

PROJECT FROM RISK MANAGEMENT COMMITTEE
Executive summary
This report states the findings of the risk management department with regard to its feasibility study, an
outline of the risk management process utilised and how this process will be applied to the
refurbishment project. The potential risks in this undertaking will also be examined and
recommendations made regarding the viability of the project.
Risk management process

The risk management committee upon receiving this feasibility project adopted the following process:
• Clarified the context and brief of the proposed refurbishment project and the feasibility study to be
undertaken.
• Understand the risks involved within project context (which will affect the decision as to whether the
project goes ahead or not).
• Understand the potential within the given risks for the organisation and its stakeholders.
• Establish the likely frequency and severity of impact and damage (from potential risks identified as
being linked with the refurbishment project).
• Research into and benchmark against other shopping centre projects.
• Risk appetite of the shopping centre management.
• Level and likelihood of risks that will be tolerated.
• Controls/risk mitigation/reduction of impact (loss reduction/prevention).
Diagram of the risk management process
Risks
The risks that are likely to be faced in undertaking this refurbishment fall under various headings:
Operational risks
Health and Safety – compliance with health and safety regulations during all stages of the refurbishment
project – project will likely be undertaken in phases and parts of the existing shopping centre will
continue to operate normally whilst construction and refurbishment works are taking place in other
areas.
• Business disruption/interruption – again as the centre will want to continue to operate.

• Public liability – visitor protection.
• Employers’ liability – staff of shopping centre and employees of various tenants – greater duty of
care due to refurbishment project to ensure a safe system of work is maintained throughout.
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• Business continuity – important to maintain continuity of business and ‘footfall’ to the centre during
the project.
• Catastrophe risk assessment important in light of refurbishment project.
• Support from stakeholders – ensure all businesses that hold leases within the centre/local
authority/investors/employees and customers are kept informed and are on board with project.
• Theft of project materials; opportunist theft; access to unauthorised areas.
• Outsourcing of some aspects of the refurbishment project.
• Security – of all types of physical assets, operations, information, risk of fraud, people visitors but
other occupants of the units, shops and offices, this is a multi-occupancy risk.
• Noise/dust/pollution during the refurbishments – ensure good standards of housekeeping.
• Environment risks as result of project process e.g. use of hazardous materials, application of heat,
health issues ensure safe removal of asbestos materials and safety of workforce removing it.
• Access issues – customers/suppliers – construction site areas must be clearly
marked/signposted/alternative access routes planned and any walkways or public use areas should
be protected from construction/works site areas by adequate perimeter boarding/signage etc.
• Loss of existing tenants due to potential rent increase; loss of staff unwilling to continue to work or
who may be temporarily laid off during works in their area of the centre.
• Project risks – potential overrun of project; budget increases; issues with project specification and
changes once project is underway.
• Local authority supervision, regulation and requirements.
Process risks
• The ability of the shopping centre and/or its tenants to continue to deliver products and services to
stakeholders whilst the refurbishment project is ongoing.
• Includes all aspects of the delivery chain, i.e. ingredients or processes.
• The effect on the key elements of the supply and delivery chain whether internal or outsourced e.g.
effect on delivery of goods to tenants’ stores.
• Risk of non-delivery to expected quality and contracted specification under the refurbishment project.
Change risks
• The risk manager and his committee has to be aware of the changes in risk that implementing the
project may bring.
• The risk committee will require intelligence sources in place across the company including the
shopping mall management team and tenant representatives.
• Management of the insurance portfolio – insurers will require ongoing information regarding changes
to the risk, for the duration of the refurbishment and after completion, enabling them to assess and
underwrite any covers that are required at various stages of the works and thereafter.
• Risk of covers not being available in the insurance market for the refurbishment project, possibly due
to previous loss history.
• Management of the risk transfer programme outside of the traditional insurance market, if
applicable – captive insurance or alternative risk financing options.
Market risks
• Demand of the customer base and demographic.
• Effect of post-recession/economy.
• Competition from other retail outlets locally.
• Reaction of customers to refurbishment works – loss of custom – will they return once refurbishment
works are complete?
Financial risks
• Availability of funding to commence the project.
• Project going over budget, increase in cost of resources to complete.
• Loss of income to businesses within existing shopping centre during period of the refurbishment.
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Rewards
Opportunity risks may include:

More people having leases – more companies want to be involved in a modern,
accessible shopping centre.
Can charge more for leases (more ‘footfall’) – increased custom to new refurbished
centre may mean more businesses interested in leases – demand will push up price of
leases.
More attractive for tenants – modern, new accessible facilities that will attract new
tenants and retain existing ones.
A wider range of tenants, including high net worth tenants and customers which will
widen the demographic appeal/diversity of the shopping centre.
Greater profitability of the shopping centre due to increased interest from consumers
and businesses in shopping/leasing units within the shopping centre.
Reputation rewards may include:
Better awareness and implementation of corporate social responsibility as a result of the newly
refurbished shopping centre in terms of:
community;
environment and
employees;
within the shopping centre which will lead to better perception of the shopping centre management and
by extension, those businesses who lease units within the shopping centre – reputation risk/reward.
Safer site
• Better electrical wiring – consideration of recent electrical regulation changes.
• Better modern construction materials and techniques used to refurbish the shopping centre.
• Better access for pedestrians and customers travelling by car/trade delivery access.
Risk assessment techniques

The risk management committee gathered information using the following techniques to ensure that they
are able to report fully to the Board/gauge the response of occupants of the centre, i.e. shopping centre
staff, tenants or tenants’ employees, customers.
• Physical inspection – Initially, the risk committee visited the shopping centre to gain a visual
impression of the existing facilities, looking at communal areas where visitors had access as well as
behind the scenes areas, trade and delivery access and the existing car park facilities. They talked to
existing tenants to gather their comments on their existing units and whether the facilities met their
needs, to look at current security and physical risks, to talk to shopping centre staff. It was also an
opportunity to observe customers using the centre and measure current ‘footfall’ levels.
• Reasons for physical inspection – able to see the existing shopping centre structure, areas for
improvement, potential risks and to gather data to prepare for other forms of risk assessment
techniques, such as questionnaires and brainstorming sessions.
• Questionnaires – to send to the companies who currently hold leasing agreements for tenancies
within the shopping centre to gather data on a number of key areas.
• Reasons for questionnaires – a straightforward tool to enhance the information gathering process
gauge areas of commonality, and identify trends in perception and thought processes.
• Brainstorming – the risk management committee met with various members of the shopping centre
management team, shopping centre staff and tenants. An informal information gathering session
would assist in then establishing more focused workshops to discuss specific risk aspects of the
proposed refurbishment project.
• Reason for brainstorming – knowledge could be gained from all areas and all levels of personnel
with involvement with the centre, as there is a wealth of knowledge and experience and
understanding of the shopping centre environment.
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• Workshops – these were held as a follow-up to our brainstorming sessions used the data/ideas
gathered at brainstorming sessions to formulate workshops focussed on a particular area such as
operational risks, as a result of the project going ahead, marketing and reputation risks etc, using a
facilitator in each session and carrying out scenario exercises to play out a particular incident that
might unfold during the project duration, how damaging it might be to the centre, and its various
stakeholders and how it could be managed.
Benchmarking – discussions held following research into other recent shopping centre new
developments and refurbishments – to assist understanding of any trends inherent to this type of
development; looked at competition and other potential commercial retail developments within the town
or region, within realistic travelling distance of this town.
Analysis of top five potential risks and how they will be handled
For example, the five top risks could come under the following headings- the examiner was looking for
specific risks rather than just one of the headings below
• Health and safety type risk – anything termed a major incident.

• Project risk.
• Access to units for customers risk.
• Contractual risks.
• Loss of key tenants.
Risk register could be used to express the top five potential risks diagrammatically
For the purposes of this report, we have used a simple risk register to illustrate the top five potential
risks that we have identified.
Project risk register
Risk Existing Further Responsibility

Risk Description Control Current Level of Risk Actions
Index Measures Planned
Likelihood Magnitude Overall

Risk
Construction Project Project

1.1 team unable High High High management management
to deliver team team
project due established;
to liaison with
contractual and clear links
issues with
construction
team
Project Project Project
1.2 resources Medium Medium Medium management management
inadequate team with team
with support from
insufficient HR and
staff finance to
recruit
Project Sufficient Project
1.3 resources Low High Medium budget management
insufficient identified to team with
funds to fund project support from
complete management
and accounting
Contractors Contractor’s Contractors and
1.4 Liability Medium Medium Medium Liability project
risks-damage insurance in management
to place team
infrastructure
causing
delay in
project
delivery
Loss of key Liaison with Board and
1.5 tenants due Low High Medium tenants with project
to support from management
refurbishmen Marketing and team
t project management
team
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Other headings that could be incorporated into a risk register include:

• Name of the risk.
• Potential impact of risk on objectives.
• Circumstances that could give rise to the risk.
• Stakeholders.
• Risk tolerance and risk appetite.
• Risk treatment and control mechanisms.
• Potential action for improvement. (Risk controls).
• Responsibility for the risk.
• Responsibility for the further actions/controls.
• Policy with respect to the risk.
• Deadline for implementation of controls/actions.
.
The risk register can be used going forward into the refurbishment project, implemented electronically
and an automatic diary system incorporated to warn when risks are due for review. Linked to the project
specification/phases, it can be reviewed periodically to review and add new risks or new and improved
risk controls.
Alternatively, the top five potential risks can be expressed in a written form with details of how they can
be handled.
Recommendations
The risk management committee consider that whilst there are potentially several risks involved in
proceeding with this major refurbishment project, the rewards and opportunities are many.
Reasons for refurbishment project proceeding:
Opportunity to become a leading retail centre within the area.

Increased trade and ‘footfall’ in terms of new tenants, including high net worth tenants
being attracted to the refurbished shopping centre which may change its market place
perception.
Reputation.
Corporate social responsibility.
May be seen as part of the town’s already ongoing re-development i.e. pedestrianisation
of the town centre – community and local authority approval
Increased profitability and market share of retail shopping in the area.
The Board must ensure that:

• The various health and safety regulations are adhered to along with other local authority
requirements.
• Compliance with construction regulations and any legal requirements.
• Safety of people is key – employee and visitor protection should be of utmost importance for the
duration of the project contract.
• Risk register is reviewed regularly and risk controls recommended are implemented to ensure that
the likelihood and magnitude of any of the top five risks are reduced or prevented, if possible.
• Business continuity plans are brought up-to-date in-line with the project specification, including a
catastrophe risk assessment.
18
Examples of good answers for Part II (Scenarios)
Question 2
PRESENTATION ON THE BENEFITS OF BUSINESS CONTINUITY PLANNING
Methodology for answer:

• Introduction – definition of business continuity planning (BCP) tying it in to relevance to
manufacturing clients; types – simple or sophisticated with examples – contracts and service level
agreements; standby suppliers; detailed recovery plans etc.
• Type of incidents that BCP can prepare for – again showing relevance to manufacturing clients.
• Benefits – business survival; economics; damage limitation; brand and reputation etc.
• The BCP – structure of the plan – areas covered; how your broker can assist the sales pitch.
• Conclusion – regular exercising of plans; living document; importance of keeping an offsite record of
the BCP.
Introduction
What is business continuity planning?

Continuity planning is one of the generic names for a process whereby an organisation will anticipate an
incident and then prepare itself so that it can manage through the consequences to the point that the
incident could not destroy the vital organs of that organisation. Plans can be simple but effective for
example, backing up computer data frequently and storing backup tapes off site. They can also be more
sophisticated including contracts for standby and replacement machinery – of utmost importance in
manufacturing where specialist machinery may be employed within the process, contracts with suppliers
and standby suppliers as well as detailed business continuity plans and recovery plans.
Types of incident that can be planned for in the manufacturing area:

• Computer failure – often drives machinery and the manufacturing process. Therefore it is of utmost
importance.
• Product recalls.
• Fire/explosion.
• Weather damage; water ingress.
• Machinery failure; power failure.
• Loss of work force through illness.
• Pollution and contamination of product or process.
• Fraud.
• Pandemics.
• Failure of information security.
• Supplier failure.
Any risk that threatens the survival of a manufacturing organisation, for example, from light industrial
factory making small electrical components for vehicles, or household equipment, or food products to a
manufacturer of vehicles, needs high priority attention even if the probability of that risk materialising is
remote. For these risks a single incidence is unacceptable unless adequate defences are in place.
Loss of confidence as a result of an incident can have severe consequences for the survival of an
organisation e.g. damage to the credibility of a brand; concern with regulatory approvals and licences,
security of intellectual assets.
See study text pg 11/3 – definition of business continuity management:
‘Holistic management process that identifies potential threats to an organisation and the impacts to
business operations that those threats, if realised, might cause, and which provides a framework for
building organisational resilience with the capacity for an effective response that safeguards the
interests of its key stakeholders, reputation, brand and value creating activities’
NOTE Business continuity management involves managing the recovery or continuation of business
activities in the event of a business disruption. And management of the overall programme through
training, exercises and reviews, to ensure the business continuity plan(s) stays current and up-to-date.
19
Benefits
The objective of business continuity management is to keep a system operational despite losses
occurring and to restore it as quickly as possible to its original state.
A manufacturer would wish to ensure that: critical dependencies are protected or duplicated in time to
avoid organisational damage; there is a fast, authorised and visible control of the incident and its
aftermath; damage is contained as far as possible; security and safety is reinstated; damage
assessments are received with confidence and acted upon; financial and operational controls remain in
place; brand value is protected (and reputation); immediate responsibilities and urgently expected
deliveries are met and a return to ‘business as usual’ accelerated.
A formal written business continuity plan would ensure that all these objectives are met.
Candidates may also mention the benefits of arrangements for;

supply chain management;
for alternative accommodation/supplies/equipment;
outsourcing of critical tasks all being in place to ensure ‘business as usual’.
Damage limitation – get a recovery team onsite, protect remaining values and begin the process of
keeping the business alive.
Advance action can also be taken with a plan in terms of beginning a process of communication to any
affected stakeholders, including employees.
Effective and proactive claims management reduces the cost of claims and operational costs to
employers.
Structure of a business continuity plan – what should be included?
The structure of business continuity plans will vary from organisation to organisation but are likely to
include certain key parts:
• Clear statement of functional priorities based on maximum tolerable outage times – outline strategies
and timescales may be suggested for their restoration.
• Details of the emergency organisation structure and personnel and necessary preparations – both
human and physical resources.
• Contractual, regulatory or governmental obligations that must be fulfilled in the event of certain types
of emergency.
• Other mandatory obligations to liaise with or inform remote owners, managers or other stakeholders.
• Instructions regarding data collection for insurance purposes and details of any insurance
arrangements.
• Communication process with employees.
• Other useful contact details such as equipment suppliers.
• Media statement public relations and crisis communications – i.e. manage information flowing to the
media and through them to the public.
• Prompts and schedules; checklists.
Two copies of plan – one offsite to ensure that information is not destroyed in the event of an incident
within the premises; there may also be two versions of the plan – one a working document used for
management approval and reviews, the other for us by the emergency management team.
How the broker is able to assist
Many large national brokers have risk management divisions or employ staff with knowledge of business
continuity planning – there are also packages available for purchase from specialist companies for
business continuity planning-brokers may have an outsourcing arrangement with such an organisation.
20
Maintaining and exercising the plan

The plan should be reviewed at least once per year as part of the annual short and long-term planning
process.
Additional reviews may be necessary if there are any significant operational changes such as:
changes in location;
major personnel changes;
major change in operational or support facilities;
restructuring;
regulatory/legislative changes;
occurrence of a significant incident and
change of risk appetite.
Exercising potential emergency management teams is part of good continuity planning.
Exercises can also:
raise staff awareness and commitment;
check decisions made about emergency resources needed and their speed and
availability;
reveal mistakes that may, in a real disaster, be destructive
check that planning and risk decisions are still current.
Conclusion
Organisations do not stand still and must recognise and plan for change. They must be prepared to
identify and adopt procedures for regularly updating information and reviewing assessments and
recommendations and this includes the business continuity plan, which should be a ‘living document’ in
a loose-leaf format ideally.
Regular testing and exercising of the business continuity plan will assist with the identification of
information and processes that require updating.
21
Question 3
Introduction
Risk appetite is a very current and key concept for many organisations, including all financial institutions.
Indeed most financial institutions now have, or are thinking about developing a risk appetite policy
statement. The production and maintenance of such statements is therefore an important activity for
many risk management professionals.
Putting together an effective risk appetite statement requires careful planning to ensure that it is both
appropriate and supports the risk management, corporate governance and strategic activities of an
organisation. A poorly planned statement can do more harm than good leading to either excessive or
insufficient risk taking.
Risk appetite definition
The HM Treasury definition provided in Chapter 4, section C2 of the study text is one such possibility:
‘Risk Appetite is the amount of risk that an organisation is prepared to accept, tolerate, or be exposed to
at any point in time.’
The concept of risk appetite is essentially about balancing risk and return. Many risks are speculative in
nature meaning that they have an up and a downside. Hence risk taking is usually necessary in order to
generate profits, the aim being to take an appropriate amount of risk that generates positive returns
without exposing a company to a high risk of damaging losses.
Why a risk appetite statement is required
One key reason is to support management decision making by clarifying the amount and types of risk
that should/should not be taken. In addition an effective risk appetite statement can support a company’s
risk control activities by highlighting which risks require attention. An effective risk appetite framework
can support strategic decision making and the achievement of a company’s strategic objectives.
Stakeholders
Stakeholders are people or other organisations who can affect, could be affected by, or might consider
themselves to be affected by a risk incident occurring in, or around, the organisation, in this case, the
financial services company.
In terms of stakeholders an effective risk appetite statement should consider the broadest possible range
to ensure that all perspectives are covered. A wide range of stakeholders may be affected by a
company’s risk exposures. In terms of credit/investment and reputation risks the key stakeholders to
consider are likely to be:
1. Shareholders/private investors – who have a financial stake in the future survival/profitability of a

company.
2. Customers – who rely on the company for the supply of good quality goods and services. In the
case of insurance this being the provision of insurance coverage and or investment returns.
3. Employees – whose livelihoods/morale can be affected by financial and or reputation risks.
4. Prudential regulators – who will be concerned if the company takes too much risk and goes
bankrupt.
22
Company’s risk appetite
In terms of expressing the company’s appetite for its credit, investment and reputation risks one
approach is to use qualitative statements, as outlined below:
A risk appetite policy outline, as illustrated in the diagram above, can be treated as a discussion
document to be continually refined in the light of management comment. It will change over time as the
organisation changes and develops.
In addition more objective numerical methods could be used, such as volatility measures for
profit/cash-flows, or credit rating limits.
The table below shows numerical classification of impact, using a numerical structure of four levels and
has established definitions of each level.
23
A probability and impact matrix, see below is more appropriate for downside risks such as reputation
risk. It is less appropriate for more speculative risks like credit risk and especially investment risk
24
Question 4
Risk management professionals are sometimes given responsibility for the management of workplace
risk and in any case must have an appreciation of this often significant area of risk.
Not all companies are automatically convinced of the benefits of the effective management of
workplace risk, hence there may be times where a risk management professional has to take a
stand – explaining the consequences of poor workplace risk management and making sensible
recommendations for improvement.
The effects of workplace risk on the employees of a company.
Accidents vary widely in their nature and scale, ranging from minor injuries which may simply require
first aid up to permanent/debilitating injuries and even death. Hence the effects of workplace risks can
be very significant.
In terms of the consequences of workplace risk for the company in question one good way to present
this might be in the form of a table:
Criminal Prosecution A breach of the UK health and safety at work act or any other
piece of workplace risk regulation could lead to fines or even
prison for directors/senior management. In the case of death due
to negligence the company and its directors could even face a
corporate manslaughter case.
Legal Liability Claims Injured employees might sue the company to cover lost earnings,
rehabilitation/long-term care expenses, pain and suffering, etc.
The relatives of a deceased employee might also sue. The
frequency and cost of these claims are increasing significantly.
Increased Employers Liability In all probability as the number of workplace risk incidents
Insurance Premiums increases so will the cost of employers’ liability insurance.
More seriously injured employees will be unable to work
potentially leading to staff shortages. This would be especially
serious in the case of more skilled workers who may be difficult to
replace (the company is a specialist manufacturer). A health and
Operational Disruption
safety inspector might in the extreme serve the company with a
prohibition notice, where it has failed to remedy a regulatory
breach. This might then force it to shut down certain activities
altogether.
Employee morale is likely to suffer as the accident rate rises. This
Loss of Employee Morale
could lead to poor productivity and possibly even industrial action.
The risk professional should not simply focus on the regulatory aspects of workplace risk, but also
consider the business related consequences. He/she needs to be aware of all legislation that may
affect an organisation and the many ways in which an organisation can be in breach of such
legislation.
The terms welfare, health and safety cover a lot of issues. Health and safety is not solely concerned
with accident prevention; the legislation recognises all sorts of industrial illness and disease, along with
work-related physical and mental impairment. Welfare includes such diverse topics such as human
rights, discrimination, data protection and arrangements for disabled workers.
An organisation has a duty of care not only to its own employees and customers, but to anyone
affected by anything the organisation might do.
The risk professional should stress in his report that the operational hazards of the day to day running
of the manufacturing organisation could have a damaging effect on the business, such as financial,
operational and reputational risks.
25
Recommendations
In terms of recommendations the risk professional should outline an overall framework for the effective
management of workplace risk.
In so doing they could refer to the Health and Safety Executive (HSE) literature- the HSE has
published a booklet called Managing Health and Safety - ‘Five Steps to Success’ outlined in below:
Effective risk assessment is a cornerstone of good workplace risk management – the aim being to
identify hazards, evaluate the risks associated with these and determine the actions required to
address these risks.
In terms of the injuries that are most often occurring at the current time specific strategies to improve
their management might include:
• Improved staff training (e.g. concerning machine operation, taking breaks, etc).
• An enhanced inspection and maintenance schedule – to help spot and correct potential mechanical
hazards.
• Improved management information – to help learn from previous incidents and near misses.
• Improving recruitment practices to ensure that competent workers are employed.
• Closer monitoring of employee health – to help detect potential vibration white finger (VWF)
problems.
• Providing better protective clothing.
• Limiting the amount of time staff spend on equipment that might cause VWF.
26

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Examination Guide

655 – Risk management

Advanced Diploma in Insurance

April 2011 Examination Guide

655 April 2011 EG

655 – Risk management

Published September 2011

Telephone: 020 8989 8464

© 2011 The Chartered Insurance Institute

IMPORTANT INFORMATION - ADVANCED DIPLOMA

Before the examination

1 General background awareness necessary

During the examination

A report normally consists of the following:

A draft speech or presentation normally consists of the following:

An examination is about exploring a topic in some detail (this could include

To analyse something in detail is to discover the meaning or essential features

Reviewing involves making a judgement about a topic which relies upon a

An evaluation is a review that is more focussed (narrower area, but in more

Assessment means considering individual components in depth and arriving at

After the examination

• Three hours are alllowed for thiss paper.

• Do nott begin writiing until the

• You arre allowed to write on the

• The ansswer book and this quesstion paper must

Unit 655 – Risk management

Read the instructions below before answering any questions

Part I 1 compulsory question (case study) 80 marks

April 2011 Examination – 655 Risk management

NOTE ON MARKING SCHEME AND EXAMPLES OF GOOD ANSWERS

CASE STUDY MARK GRID

Knowledge and Understanding (includes accuracy and completeness of facts)

25-32 marks 17-24 marks 9-16 marks 8 marks or fewer

Application and Analysis

25-32 marks 17-24 marks 9-16 marks 8 marks or fewer

7-8 marks 5-6 marks 3-4 marks 2 marks or fewer

7-8 marks 5-6 marks 3-4 marks 2 marks or fewer

SCENARIO MARK GRID

Knowledge and Understanding (includes accuracy and completeness of facts)

13-16 marks 9-12 marks 5-8 marks 4 marks or fewer

Application and Analysis

13-16 marks 9-12 marks 5-8 marks 4 marks or fewer

4 marks 3 marks 2 marks 1 mark or zero

4 marks 3 marks 2 marks 1 mark or zero

Example of a good answer for Part I (Case study)

REPORT TO BOARD ON XYZ SHOPPING MALL, NEWTOWN AND PROPOSED REFURBISHMENT

Risk management process

Diagram of the risk management process

• Business disruption/interruption – again as the centre will want to continue to operate.

Opportunity risks may include:

Reputation rewards may include:

Risk assessment techniques

• Health and safety type risk – anything termed a major incident.

Project risk register

Risk Existing Further Responsibility

Likelihood Magnitude Overall

Construction Project Project

Other headings that could be incorporated into a risk register include:

Reasons for refurbishment project proceeding:

 Opportunity to become a leading retail centre within the area.

 Increased profitability and market share of retail shopping in the area.

The Board must ensure that:

Examples of good answers for Part II (Scenarios)

Opportunity to become a leading retail centre within the area.

Increased profitability and market share of retail shopping in the area.