Identifying & Analyzing Personnel Loss Exposures

Economic value is generated by people, both when they are the employees of an organization and when they are the member of a household. Their loss is indispensable, as the human can not be replaced, and there is no value placed to the human life. However, the value they generate for the organization and for the house can be managed through effective risk management.

For effectively managing the loss of a person at house as well as in an organization, it is necessary to first understand that what is the value created by a single individual, then identify and deeply analyze those perils which can affect the value generation, after that analyze that if any peril occurred, then what will be the extent of loss suffered. If there is a loss of personnel in an organization, then there are two further risk management concerns as to the employer’s liability in administrating and funding the employee benefit plans & the uncertainties involved in funding such plans.

The financial value of a person to his or her employer and to the household is the income he generates for them. In addition to income which the person generates, services which he renders to the household are also valuable and those services can never be replaced. So from the point of view of risk management, the financial value generated by the person will be calculated by subtracting that person’s expenses on himself from the income he generates.

The perils which can give rise to personnel lose exposure both in organization and household includes death, retirement, disability and unemployment of a key person generating economic value. Of these perils death has the lowest frequency and the highest severity as the employee who is supporting the organization in fulfilling its targets will be lost forever, due to which the organization will have to suffer a great loss. Disability and unemployment has a high frequency but their severity is highly capricious, it depends upon the time duration for which the person will remain disabled or unemployed. Retirement is the least severe peril and it is mostly predicted, its severity can further be lower if the organization and the household has already anticipated the end of person’s career and generated funds to meet the requirement.

The Risk Managers will have to plan to cope for the losses in advance. For an organization, they will create the replacement of the key person so that the severity of the loss will be reduced. They will also follow the philosophy of putting all the eggs in one basket and giving all the attention to that or they may also follow the philosophy of not putting all the eggs in one basket so the chance of losing all does not occur. Organization will try to generate funds for their employees, so that in case of any disability they return back to their position as soon as possible. For a household, risk managers will try to create funds and will also refer for insurance, in case any uncertain event occurs.

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