3. Management of Operational Risk Through Insurance Schemes
| Status: In-Force |
The successful management of operational risks is central to the long-term profitability and . survival of a bank. All banks are exposed to a variety of such risks and must develop an integrated management approach for their effective control. Management response must include a strong organizational structure, an affective system of internal controls' segregation of duties, ; internal and external audits, physical security procedures, etc.
Another important method to limit operational risk includes the purchase of insurance. The various forms of insurance schemes include self insurance, regular insurance and other insurance alternatives, encompassing retention groups, group captives, risk sharing pools, etc. Insurance is a method to fund a loss exposure as opposed to managing or controlling risks. Other effective i mechanisms to limit the impact of losses arising from operational risk include the finite risk insurance approach. This approach involve risk transfer through regular insurance and self insurance, and generally has an upper limit to its liability, hence finite insurance.