Defining and categorizing various forms of risks Competency Construct a framework for identifying, evaluating, and categorizing risk and risk management tools. Instructions LTD Acceptance is a private property and auto insurance carrier that specializes

Importance of Risk Identification

Highlighting the apparent risks that may encounter the organization is a significant process. When operational risks are not identified at their formative stage, there is a chance that normal functioning will be hampered. Also, the workforce may be subject to encountering risks. If affected, execution of their mandated duties is curtailed and thus operations will also stall. Failure to identify risks also means that the business cannot accurately define its objectives. Doing so without a risk identification framework would be a recipe for failure as risks can completely damage the company’s operations.

Market Risks

There are several market risks that LTD Acceptance may face and therefore the need of having an identification framework in place. For example, the interest rates at which the company prices its premiums can be affected by a shift in the monetary policy (Leybag, 2018). Also, there is the foreign exchange risks that are likely to impact the company as it deals in automobiles that are subject to importation. The other market risk is commodity price. For example, the price of commodities such as fuel may rise and stay high for a prolonged period (Leybag, 2018). This will impact the automobile owners who may be unwilling or incapable of paying insurance premium rates that they deem high.

Business Risks

The company is also not immune to business risks and faces a couple of them in day to day operations. Economic risks are commonplace whereby there are downturns in the performance of the economy (Boitnott, 2019). This affects businesses tremendously and LTD Acceptance has to be economically set for such occasions. LTD Acceptance also faces security risks in their day to day operations and there is the chance that one such risk could grow in proportion. Without an effective client data protection policy, hackers may access it and use the data for malicious intents (Boitnott, 2019). Lastly, financial risks are capable of ultimately weighing down on the company. If it is paying more in compensations than the received premiums, there is a danger of going bankrupt.

Compliance and human capital risks

Compliance is also a major business risk that could affect LTD Acceptance. If the firm has not placed measures of ensuring that there is compliance, there is the chance of the authorities causing the closure of the business or else impose heavy financial sanctions and penalties. Human capital risk concerns the type of damage that the employees may bring to the company in terms of reputation, morale and even the revenue. There is a significant human capital risk at LTD Acceptance suppose there are no measures of training and passing down the company’s values to the workers. This is, especially, posed by the distant level of contact between the company and the agents.

Risk Mitigation and Overall Productivity

Managing risk is an imperative process for any business that intends to stay afloat for an extensive period while still remaining profitable. Having a way of overcoming the probable dangers implies that business productivity will not affected. For instance, having mitigating measures on the economic risks means that slumps in economic performance will in no way affect the business. Also, curtailing the human capital risk will lead to increased revenues and create a good impression of the company. This is imperative for keeping competition at bay.

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