Business Finance
BF 341 The College of New Jersey Risk Project for Boeing Discussion

BF 341

The College of New Jersey

BF

Question Description

Need help with my Management question - I’m studying for my class.

This assignment should be very simple, the paper should be 3-4 pages in length and you have a week to do it. All the information regarding the assignment will be within the attached files and there are external links within the files that will also help you complete the assignment.

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BF 341 Risk Management Project Overview The following is the risk management project for the course. As we discussed, this project has transitioned to an individual project. You are free to use the textbook, powerpoints, and any class notes you have developed in formulating your response. Do not utilize any external sources beyond these materials. The question will emphasize material developed in Chapter 3 and Chapter 26 of the text. The paper should be 3-4 pages in length to answer the questions completely, but the paper cannot exceed 5 pages, double spaced, 12-point font. Facts For the purposes of this question you are to assume the role of the Director of Risk Management for Boeing, Inc. Recently Boeing has experience significant problems with an aircraft it designed and manufactures – the 737-MAX-8. For additional details regarding the issues examine the following links: https://www.cnn.com/2019/03/10/africa/ethiopian-airlines-crash-boeing-max-8-intl/index.html https://www.cnbc.com/2019/04/04/ethiopia-report-calls-on-boeing-to-confirm-that-control-issues-arefixed-737-max-8.html https://www.businessinsider.com/boeing-ceo-apologizes-737-max-crashes-ethiopia-investigation-2019-4 Part 1 Identify four critical loss exposures associated with the design, development, distribution and sale of a new aircraft for a company like Boeing. Which of these exposures is the most significant in terms of loss severity and why? Finally, describe in detail two different risk control strategies you could apply to manage any one of these loss exposures you identify among the four critical loss exposures. Part 2 In responding to the issues presented by the 737-MAX-8 crashes, assume the company purchases the following forms of insurance: D&O Coverage - $200,000,000 in aggregate limit Commercial General Liability (“CGL”) - $500,000,000 in aggregate limit Commercial Umbrella - $500,000,000 in aggregate limit Describe how each of the three coverages might be called upon to respond to liability claims that may arise related to the crashes from either the airlines that purchased 737s, the families of the passengers that passed away as a result of the crashes, or the shareholders of Boeing, Inc. Finally, highlight one exclusion typically found within a CGL policy that could be an issue in relation to the scope of coverage for the 737-MAX-8 problems. Introduction to Risk Management BE 341 INSURANCE & RISK MANAGEMENT MONMOUTH UNIVERSITY Introduction Risk Management is the process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures ◦ Loss Exposure: any situation or circumstance in which a loss is possible regardless of whether a loss actually occurs Risk Management has both pre-loss and post-loss objectives Pre-Loss Objectives ◦ Prepare for loss in most economical manner possible ◦ Reduce anxiety ◦ Meet legal obligations Introduction Post-Loss Objectives ◦ ◦ ◦ ◦ ◦ Ensure survival of the firm as a going concern Maintain operational status without interruption Maintain earnings stability Continue growth trajectory Minimize the effects that a loss has on individuals and society Risk Management Process Loss Exposures Property Loss Exposures Liability Exposures Business Income Exposures Human Resources Crime Exposures Employee Benefit Exposures Foreign Loss Exposures Intangible Property Exposures Legal & Regulatory Compliance Risk Management Process Multiple sources of information are used by risk managers to identify loss exposures ◦ ◦ ◦ ◦ ◦ ◦ ◦ ◦ Risk Analysis questionnaires & checklists Physical inspections Production flowcharts Financial statements Historical loss data Market data from insurers and brokers Legal white papers Trade Associations and meetings: RIMS Risk Management Process Measurement and analysis of loss exposures involves estimation of both loss frequency and severity ◦ Loss frequency: refers to the probable number of losses that may occur during some given period of time ◦ Loss severity: probable size of the losses that may occur ◦ Estimates of frequency and severity permit risk managers to prioritize specific exposures: finite resources for risk control and transfer ◦ Frequency and severity estimates may lead managers to apply discrete techniques: may elect insurance versus loss controls based upon profile Severity takes on greater impact due to the potential for catastrophic loss to impair the balance sheet and/or bankrupt the firm ◦ Maximum possible loss: worst loss possible ◦ Maximum probable loss: worst loss reasonably expected Risk Management Process D&O Claim Frequency & Severity http://securities.stanford.edu/charts.html http://securities.stanford.edu/clearinghouse-research.html Risk Management Process https://finance.yahoo.com/quote/NKE?p=NKE Risk Management Process Risk managers must strike the appropriate balance between risk control and risk financing techniques ◦ Risk Control: techniques that reduce the frequency or severity of losses ◦ Risk Financing: techniques that provide for the funding of losses Risk Control Avoidance: certain loss exposures are never acquired, or an existing exposure is abandoned ◦ Reduces some exposures to zero ◦ Certain risks are inherent within operating a discrete business ◦ Opportunity costs matter as well Loss Prevention: measures designed to reduce the frequency of a particular loss Risk Management Process Loss Reduction: measures that reduce the severity of a loss after it occurs Duplication: having back-ups or copies of important documents, property or operational capabilities Separation: dividing assets exposed to loss to minimize harm attributable to a single event Diversification: reducing the chance of loss by spreading loss exposure across different parties, securities or transactions Risk Management Process Risk Financing Retention: firm retains part or all of the losses that can result from a given exposure ◦ Active vs. Passive: whether retention is known and intentional ◦ Retention at times can be compelled because a market solution does not exist or is too expensive: value of an asset ◦ Retention is often attractive when losses are low severity and frequency is fairly predictable ◦ Firm’s cash and credit position can influence retention choices ◦ P&C markets can fluctuate also influencing retention options and choice Retention Level: dollar amount of losses the firm decides to retain ◦ Earnings impact ◦ Net working capital Risk Management Process Where losses are retained a payment methodology must be developed ◦ Current Income: treat losses as expenses that reduces income ◦ Unfunded Reserve: accounting account charged with actual or expected losses ◦ Funded Reserve: setting aside funds to meet expected losses: opportunity cost of such a reserve ◦ Credit Line can be maintained to fund losses as needed Captive Insurer: an insurer owned by the parent firm for the purpose of insuring the firm’s loss exposures ◦ ◦ ◦ ◦ Single-Parent Captive: owned by only one parent Association or Group Captive: owned by multiple parents Over 7,000 captives exist (2014) Many domiciled in Bermuda & Caymans – U.S. domestic: Vermont Risk Management Process Multiple reasons why a company would establish a captive ◦ Some forms of insurance may be difficult to secure on a cost-effective basis from commercial insurers ◦ Offshore captives often face more favorable regulatory environment ◦ Lower costs through efficiencies, elimination of insurer profit and broker fees, return on investments, tax benefits, etc. – profitability possible ◦ P&C market fluctuations are avoided ◦ Reinsurance is easier to access and more cost effective Captive tax treatment: premiums paid to a captive may be tax deductible under certain conditions ◦ Bona fide insurance transaction ◦ Parent and subsidiary structure are relevant ◦ Single vs. Group Captive: group generally gets deductibility of premiums Risk Management Process Self-insurance is always a potential option but a stop-loss approach is often used: carry excess insurance or reinsurance above a defined loss threshold Risk Retention Groups are group captives able to write any type of liability exposure except employers’ liability, workers compensation and personal lines Advantages of retention ◦ ◦ ◦ ◦ Save on loss cost for lower than anticipated losses Save on expenses Encourage loss prevention measures Increase cash flows Risk Management Process Disadvantages of loss retention ◦ Possible higher losses where losses exceed anticipated losses ◦ Higher expenses: may not achieve scale economies for loss management ◦ Higher taxes: premiums and loss reserves Noninsurance transfers: methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party ◦ Contracts, incorporation of the business, hold harmless agreements are methods to transfer ◦ Can be used to transfer risks that are not commercially transferrable ◦ Often low cost methods & can make party with most control responsible ◦ Transfer can fail if language is unclear & credit risk remains Risk Management Process Commercial Insurance is also an option to address loss exposures ◦ First step is to select type of insurance programs needed: ideally insurance is used for low probability and high severity exposures ◦ Deductible: provision by which a specified amount is subtracted from the amount otherwise payable to the insured: different than a retention ◦ Second: identify acceptable insurers ◦ Acceptable financial strength ◦ Pricing and coverage terms needed ◦ Primary vs. Excess: follow form ◦ Risk Management & loss services provided ◦ Terms of sophisticated commercial policies are highly negotiated: typically begin with insurers base form and tailor through endorsements ◦ Terms of coverage must be communicated throughout the firm ◦ Periodic review and renewal Risk Management Process Advantages of Insurance ◦ ◦ ◦ ◦ Indemnification for losses Reduction in uncertainty allows for better budgeting and planning Loss prevention and support services Tax efficiencies of premium payment Disadvantages of Insurance ◦ High premium costs ◦ Time and effort within the negotiation and maintenance of programs ◦ Lowers incentives for loss control Risk Management Process To determine which risk management technique to apply a matrix can be used – See Exhibit 3.2 Must still analyze the costs, benefits, legal requirements, and level of uncertainty to determine the appropriate approach Market conditions also influence options and choice Risk Management Process Firms should have a risk management policy statement: outlines the philosophy, risk management objectives and specific company policies toward loss exposures ◦ Risk management manual can provide detailed descriptions of implementation policies ◦ Firm should also identify key strategic partners in terms of intermediaries (brokers) and markets (insurers & reinsurers) Risk Management function extends across numerous standard functional areas including accounting, finance, operations, HR, legal, and marketing Review and exposure assessment remains a critical area Benefits of Risk Management One benefit of effective risk management is the continued viability of the firm as a going concern Cost of risk may be reduced thus increasing profitability Broader portfolio of risks can be addressed as risk management sophistication grows: from pure to more speculative risks Broader social benefits Career options for skilled risk managers re strong ◦ Often direct reporting relationship to CFO or officer level title ◦ Average salary is $145,000 in 2015 Personal Risk Management Personal risk management: the identification and analysis of pure risks faced by an individual or family along with the selection and implementation of the most appropriate techniques for treating such risks Follow same steps and retain similar alternatives among avoidance, prevention, retention and transfer Example: personal healthcare – employers are offering high deductible options more and more ◦ ◦ ◦ ◦ Young people consume less healthcare Underestimate unlikely events – disability Cost of care and loss of income Life events that effect costs Commercial Liability Insurance BE 341 INSURANCE & RISK MANAGEMENT MONMOUTH UNIVERSITY General Liability General liability refers to legal liability that stems from business operations other than auto or aviation accidents and employee injuries ◦ Often part of a package program ◦ Present in a BOP Premises & Operations Liability: liability can stem from the ownership and maintenance of a premises & activities ◦ Must maintain in a reasonably safe condition ◦ Employer is responsible for actions of employees within scope of employment ◦ Customers are invitees: owed highest degree of care General Liability Products liability is the legal liability of manufacturers, wholesalers and retailers to persons who are injured or incur property damage due to defective products ◦ Negligence, breach of warranty or strict liability standard can apply ◦ Negligence possible in both design and/or manufacturing Completed Operations Liability refers to liability arising from faulty work performed away from the premises after the work of operations is completed (contractors, plumbers, electricians on-site work) Contractual Liability can be addressed: where the firm assumes by contract the legal liability of another party ◦ Landlord receives a hold harmless from a tenant to remove owner’s obligation and assume duties like safe premises General Liability Contingent Liability is liability that results through work done by independent contractors ◦ Liability results where work is illegal, situation or work does not permit delegation, or the work carried out is inherently dangerous Other general liability exposures that have specialized coverages include: ◦ ◦ ◦ ◦ ◦ ◦ Auto, aircraft or watercraft Occupational illness or injury Employment practices Cyber Liability Professional Liability D&O CGL Policy CGL can be purchased on a claims made or an occurrence based trigger ◦ Claims made covers claims made and reported during the policy period ◦ Occurrence based covers claims that arise out of activities carried out during the policy period Coverage A: Bodily Injury and Property Damage Liability: insurer agrees to pay on behalf of the insured all sums up to the policy limit the insured is legally obligated to pay for bodily injury or property damage ◦ Occurrence: accident, including continuous or repeated exposure to substantially the same general harmful conditions ◦ Does not cover known losses at the time of policy inception ◦ Also covers defense costs ◦ Excludes losses for intentional injury, contractual liability, liquor liability, workers comp, war, pollution, damage to property, damage to the insured’s work, product recall, personal & advertising injury, & electronic data ◦ Exclusions carved out for fire legal liability: leased or temporarily occupied CGL Policy Coverage B: Personal and Advertising Injury Liability: insurer agrees to pay sums the insured is legally obligated to pay due to personal and advertising injury ◦ ◦ ◦ ◦ ◦ False arrest, detention or imprisonment Malicious prosecution Wrongful eviction or entry Oral or written publication that libels, slanders or violates personal privacy Infringement of copyright, slogan or trade dress Coverage C: Medical payments of persons who are injured on or on ways next to the premises, or as a result of insured’s operations ◦ Paid without regard to legal liability ◦ Expenses must be incurred within one year of the accident/occurrence CGL Policy Coverage can insure owners (and spouses), partners (and spouses), members and managers, Ds&Os, and trust and trustees ◦ ◦ ◦ ◦ Volunteer workers Employees acting in the scope of their employment Legal representative/ estate is insured passes away Acquisitions CGL policies will have a maximum aggregate limit and specific sub-limits ◦ Each occurrence sublimit under Coverage A & C ◦ Medical expense & personal and advertising injury sub-limit Policy form will include conditions and definitions Liebeck v. McDonalds Ms. Liebeck sued over coffee she received at the drive thru and spilled on herself She sought to settle for $20,000 but McDonald’s refused Jury award was for $200,000 (reduced to $160,000) and $2.7MM is punitive damages (reduced to $480,000) Liebeck v. McDonalds Ms. Liebeck was not driving, she was a passenger 3rd Degree burns over 6% of body requiring skin grafts McD’s had over 700 similar incidents in the 10 years prior (some also involving 3rd degree burns) Coffee at McD’s held at between 180 and 190 degrees ◦ Burns in 2 to 7 seconds at that temperature ◦ Comparable eateries hold coffee at 140 degrees ◦ At 180 degrees food not fit to eat: will cause burns McDonald’s quality & temperature connection Claims Made Policy Forms Claims-Made Form covers only claims that are mead and first reported during the policy period provided the act occurred after the retro date Claims made policies were designed to deal with the problem of long tail claims: actuarial challenge for pricing and reserving Coverage can be written for acts that extend back in time to a specified date: retroactive date Extended reporting provision also typical term: provides a reporting window after the policy expires where: ◦ Policy is cancelled or non-renewed; ◦ Policy is replaced with a later retro date; or ◦ Policy is replaced with an occurrence based policy Claims made policies can also be purchased for run-off: 3 & 6 year notice periods Employment Practices Liability Employers face exposures from employees applicants and third parties that allege wrongful termination, discrimination, harassment, failure to promote or hire, and other types of employment related claims Insureds can purchase either a stand alone EPL policy or blend this coverage into a D&O program: shared limit Coverage for claims alleging a covered wrongful act Policies for EPL are typically duty to defend, but the complaint cannot be settled without the insured’s consent Excludes criminal acts, contractual liability, workers comp, violation of law like ADA, strikes, prior acts or prior notice (claims made form) Employment Practices Liability Many companies purchase EPL offshore (Bermuda) to ensure coverage for punitive damages Self-insured retentions can vary considerably from state-to-state as legal risks associated with EPL vary substantially ◦ Heightened state law protections for certain wrongful behaviors ◦ Certain jurisdictions known to render higher jury awards for EPL claims: California very high risk Wage and hour claims have become common: allege you misclassified hourly employees as salaried and thus owe overtime ◦ Insurers have sought exclusionary wording Very challenging to get many types of employment claims certified as a class action: Dukes v. Wal*Mart Workers Comp All states have workers compensation laws that require employers to provide benefits to workers who have job related injury or occupational diseases Comp cover provides medical care, cash benefits, survivor benefits and rehabilitation to workers for job-related accident or disease ◦ Applies principle of liability without fault ◦ Workers receive benefits under state law without lawsuit Part One: Workers Compensation: all workers compensation benefits due under state law: no dollar limits under policy ◦ Employer must reimburse for losses from willful misconduct, violations of law or safety regulations Workers Comp Part Two: covers employee suits for injury claims that are not covered unde ...
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Final Answer

Hello there,I just finished your requested work and I am attaching it to this message. As you will be able to see in the attached file, all the parts of the task were answered accordingly. Your professor requested to NOT use any external references other than your provided class notes. Due to that, no reference page was included as that was not requested.I understand the importance of original papers and due to that I always write my own works. As you will be able to see, the entire paper was written by me which proves that it is fully original.It was a pleasure working with you and I hope I will be able to offer my support in the near future too.

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This file is intended for personal use. It does not represent the file that should be sent to the professor. Its only role
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1.General Information About the Paper
File Name: Risk Management
Format: APA
Type : Essay
Number of Words: 1043 words
Pages: 5 pages (1 cover page + 4 content pag)
Subject: Writing
References: No
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*The guideline given by your professor was correctly followed
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Running head: RISK PROJECT FOR BOEING

Risk Project for Boeing
Student’s Name
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RISK PROJECT FOR BOEING

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Risk Project for Boeing Company
Part 1
The horrific plane crash of the Bo...

Robertmariasi (5661)
UC Berkeley

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