Just published – Handbook 141:2011 Risk financing guidelines
7 June 2011
Handbook 141:2011 Risk financing guidelines is designed to help organisations of all types manage risk effectively in those situations where the availability of money, in the amount required and when required, can make it more likely that the organisation will achieve its objectives despite occurrence of an unintended event. Such arrangements, of which insurance is the most common example, are known as 'risk financing'.
Handbook 141 is a companion handbook to AS/NZS ISO 31000:2009 Risk management – Principles and Guidelines. It explains the role of risk financing in the organisation's overall approach to managing risk effectively and describes a wide range of risk financing techniques. One section sets out an approach to ensure that risk financing arrangements are as efficient as possible and includes numerous useful practical tips.
In endorsing the usefulness of the Handbook, John Richardson, the Immediate Past President of the Australia and New Zealand Institute of Insurance and Finance says, 'Handbook 141 will be of considerable value to both consumers of risk financing instruments and to practitioners in the insurance, banking, and merchant finance industries that design and provide this form of risk treatment'. Richardson notes that while risk financing has its own jargon which can be confusing to non-specialists, 'the Handbook has managed to use plain language to explain the main ideas while also introducing the reader to the specialist lexicon of risk financing.'
The Handbook has been prepared with the needs of three types of end user groups in mind:
- Directors, managers, or risk specialists with responsibilities for implementing their own organisation's risk financing arrangements.
The objective for this group is to help them become well-informed consumers, providing the knowledge, understanding, and confidence to work with their external advisers to explore and test options and make decisions consistent with good governance.
- Expert providers of risk financing services (including those involved with legal issues).
The objective for this group is to provide additional background knowledge to their formal training and an awareness of some of the other risk management issues beyond their own domain that are often highly relevant to the reliability and efficiency of risk financing arrangements.
- Students of risk management.
The objective for this group is to help them gain an understanding of this form of risk treatment and its relationship to the overall risk management process and to other controls.
The two principal authors of Handbook 141, Russell Bell – an Executive Director of Aon with 40 years experience as a practitioner in both New Zealand and the United Kingdom, and Roger Estall – New Zealand's representative on the ISO working group that developed ISO 31000 and a risk management consultant, emphasise the importance of recognising that like any contract, risk financing is a form of sharing rather than 'transferring' risk between parties.
Estall says, 'there will always be some uncertainty as to whether and how the risk financing instrument responds to the particulars of events for which it was designed. That is why they need to be based on thorough risk assessment, exchange of quality information, and careful attention to wording – keeping in mind that some legal precedents date back as much as 200 years.'
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