The paper "Operation Risk within an Insurance Market" is an outstanding example of marketing coursework. Operational risks are one of the most subtle risk constructs. An operation risk is most at times damaging when mixed with other risks (Gurney, 2005). Management leaders argue that “ if you can’ t measure it manage it” . Therefore, operational risks are observed to decline meaningful measurement. Various experts admire the merits of articulating risk appetite, however, operational risks are very hard to segregate let alone how much of it one is equipped to accept (Gurney, 2005).
For instance, at Lloyd’ s, their work has led them to a great conclusion that the most essential step is to focus on both recognition and management of operational risks instead of its measurement. Therefore, it is possible to put up a tolerance threshold for operational risks. Operational risks are commonly referred to as the risk of loss that comes about from the inadequacy or failed internal operations, people as well as systems (Gurney, 2005). It also results from external events. However, the meaning of operational risk differs from industry to industry.
It varies with the business under consideration and most at times is limited to operations whereas, other definitions incorporate things which aren’ t in other risk groups. In this definition, the term ‘ loss’ should incorporate both direct and indirect loss as well as damage to reputation. Therefore, operational risks include; damage to physical assets, employment practices, internal and external fraud as well as client, products and business practices (Gurney, 2005). The most common difficulties that accompany operational risks is the fact that it can be very hard to segregate the element to operational loss from other forms of losses in other risk groups.
This is because they are entangled. Operational risks failings lead to other forms of loss that may have been earlier avoided if there were no occurrences of operational failure (Gurney, 2005). Operational risks at Lloyd’ s have been seen at two levels; Franchisor and Franchisee level (Gurney, 2005). At these levels, the variation in the insurance business means that both the people and their management are prospective operational risk areas. From past experiences, operational risks can be foreseen to bring about devastating impacts to the Lloyd’ s Franchisee.
In addition, at a central level, the Franchisor operates the buildings on behalf of the market for instance, the risk of losing the usage of a building (Gurney, 2005). With the rising rate of globalization of business processes, most insurers inclusive of Lloyd’ s, have become very intricate. Due to the advancement of technology, the continued rise of internet usage has created potential grounds for operational risks (Gurney, 2005). It is very important to manage operational risks in order to appreciate the gains that can be anticipated from its proper appropriate management so as to justify the costs (Gurney, 2005).
First, the potential of operational risk to directly affect the market value as well as the reputation of the business has significantly increased. In addition, there has been an increased rate of stakeholder scrutiny (Gurney, 2005). This calls for a commercial justification. Therefore, a thorough understanding of operational risk together with its causes and effects permits one to undertake various cost-effective operations so as to minimize the rate of recurrence, identify any future risks as well as alleviate the effects of such risks.
Abu Dhabi. (2015). The Insurance Authority issues Financial Regulations to Traditional and Takaful Insurance Companies, Insurance Authority. Retrieved from http://www.ia.gov.ae/en/news/pages/financial-regulations.aspx
Gurney S. M. A., (2005). "Operational risk within an insurance market". Journal of Financial Regulation and Compliance, Vol. 13, Iss. 4, pp. 293–300.
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