Introduction
As a private insurance carrier specializing in higher-risk policies for sports cars and motorcycles, LTD Acceptance faces significant operational risks that could lead to failures, compromising profitability. As requested by shareholders, this report outlines a plan for proactively managing exposures to operational failures to ensure continued organizational effectiveness.
Categorizing Operational Losses
Broadly managing all potential operational losses together would be ineffective. Losses must be categorized by type of risk exposure. Attempting to manage distinctly different risks and failures with a one-size-fits-all approach cannot adequately address their unique attributes and prevention needs (Tzanou, 2020). Categorizing operational risk into relevant groupings allows for targeted management plans.
Managing Exposures
Internal Fraud
Employee theft of cash or data and misreporting financial transactions are two examples of internal fraud that require active management. These threats can lead to financial losses, compliance violations, and reputational damage. Strict financial controls, surveillance, audits, and code of conduct training help manage such risks.
External Fraud
Customers providing false information to obtain policies and filing exaggerated claims are two common external fraud risks. These undermine profitability. Rigorous background checks during underwriting and thorough investigatory procedures for potentially inflated claims are essential management practices.
Employment Practices
Discrimination lawsuits and employee injury claims should be managed to avoid regulatory fines, legal expenses, settlements, and increased insurance premiums. Robust policies, training, reporting procedures, and monitoring of employee treatment and work conditions reduce exposures.
Clients, Products, and Business Practices
Selling inadequately screened policies and engaging in prohibited sales practices are examples that must be governed to limit policyholder and market conduct issues. Quality control audits, product testing, regular policy reviews, and strict sales practice oversight help contain such risks.
Physical Assets
Fires, floods, storms, and accidents damaging properties and equipment lead to repair costs, claims, and business disruption if risk improvement investments are not supported. Upgrading facilities, ensuring code compliance, purchasing redundancies, and conducting drills assist with exposure control.
Business Disruption
When information technology systems that customers rely on to access accounts and file claims go down, it causes major problems and interruptions to operations. The same goes for when the facilities’ basic utilities and core supply chains of products and services get disrupted (Spring et al., 2022). These types of failures stop normal business activities from being able to perform properly. Some effective ways LTD Acceptance can avoid these issues or better respond when they happen so that the negative impacts do not seriously harm the business. In addition, customers or employees have backup plans in place so work can be done in other ways and make sure data is saved securely on servers in more than one location. Putting these kinds of safeguards in place lowers the chances of serious operational breakdowns.
Conclusion
An operational failure in any one of these risk areas has the potential to negatively impact LTD Acceptance through direct costs, legal liabilities, or reputational harm – directly compromising profitability goals and shareholder interests. By properly categorizing key exposures and targeting resources to deeply understand unique risks across these domains, the probability of occurrence can be lowered significantly through proactive avoidance, prevention, and control programs. The ability to quickly detect emerging incidents and respond appropriately also relies heavily on establishing robust monitoring and coordinated response capabilities well before a failure manifests. Making managed operational risk an organizational priority and core competence fosters a resilient culture capable of effectively facing challenges. This commitment to strong operational risk management aligns directly with business continuity and lasting success.
References
Spring, M., Faulconbridge, J., & Sarwar, A. (2022). How information technology automates and augments processes: Insights from Artificial‐Intelligence‐based systems in professional service operations. Journal of Operations Management, 68(6-7), 592–618. https://doi.org/10.1002/joom.1215
Tzanou, M. (2020). Addressing Big Data and AI Challenges: A Taxonomy and Why the GDPR Cannot Provide a One-size-fits-all Solution. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3654119
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