Directive 2009/138/EC is a directive under the European Union that harmonizes EU insurance regulations allowing them to be compliant in managing their capital, especially diverse insurance funds. The directive further places a directorate stating the amount of capital fund they should hold to limit insolvency. Uber-Insurance is struggling to meet this threshold, hence it is important to develop a detail risk appetite and risk strategy for Uber-Insurance as below. A risk appetite determines the targets Uber is seeking to meet, while risk strategy evaluates the mechanism that Uber is putting in place to meet this risk appetite.
Given the risk, appetite can be viewed as milestones that the organization is willing to go through to achieve the appropriate capital threshold. Uber has identified the following risks appetite
Maintaining a stable credit rating
Uber hopes to maintain a stable credit threshold where the existing capital can meet at least 30% of premium payouts. Maintaining a stable credit rating requires Uber to collaborate with other Insurance companies and banks. As well, Uber has revised its credit rating formula policy, by improving the threshold of compensation. Uber notes that credit blowups might affect the Net Asset Value, hence its formula for premiums has focused on responding to the future yields where the value of funding. Hence, it has been important to access risk for the insurance provider by analyzing both risk profile in relation to the individual bond structure, liquidity, and maturity sequence of premiums (Mimra and Wambach, 2017). See Table 1 Column 1
Protecting reputation and brand
A major concern for Uber now is protecting its brand market, given that Uber insurance is also connected to Uber taxi business. Protection of the reputation and brand insurance focuses on the trademark issues. Uber-insurance presents itself as understanding companies that meet a stretching liability cover against prevailing damages as well as the consequence for different litigation cases. In fact, Uber-Insurance has avoided such litigation procedures given that they hurt the company images as well creates drenches on the financial system. The column of brand insurance has weighted all risks that are associated with the provision.
Developing strong supply chain systems
Uber insurance has partnered with banks, financial lenders, and marketing agents to strengthen its supply chain. Uber has managed to maintain a stronger processing between firms while integrating positive systems for their market. The company has managed to employ a stronger policy and risk management by building claims-processing systems using a cluster of insurers while documenting repository for cutting costs (Scordis et al., 2014).
Creating a strong corporate governance and compliance
Uber corporate governance is structured in a way that board of governors presents ultimately accountable and responsible financial performance systems, indicating that the company has a stronger ability to respond to the prevailing market conditions. Uber has traditionally focused on the accountability and responsibility of all officials. This way, it has been possible audit premium accounts, organize risk management committees as well place measures that help in minimizing conflict of interests between players.
Table 1: Risks Appetite
Criteria Weighting (scale 1- 5)
(Separated) Brand Reputation
(Integrated) Supply Chains
(Packaged) Corporate Governance
w p w x p p w x p p w x p p w x p
Quality 4 3 12 4 16 4 12 5 12
Time 3 4 12 2 6 5 15 4 15
Cost 4 5 20 5 20 2 9 3 12
Risk 3 3 9 3 20 2 12 5 15
Scope 3 5 15 4 12 5 9 4 12
Difficulty 4 2 6 3 12 4 9 4 16
Flexibility 2 4 8 5 10 3 9 3 6
Price opposition 3 4 12 3 9 2 4 2 6
Responsibility 5 3 15 4 20 4 20 3 15
Total Appetite 31 33 109 33 125 31 99 33 109
Having established the risk Appetite, the organization has focused on developing a risk strategy that will help in mitigating risk. Risk strategy is defined as an uncertainty of event and condition that occurs through the positive and negative effect of the project objective. The resolution strategy focuses on economic, technological, environmental and legal. The reasonable treatment allows effects and controlling of these risks where the probability-impact matrix allows development of a stable project.
Table 2: Risk Strategy
Risk Strategy Probability Impact Matrix
(Probability) Consequence 0.05 0.10 0.20 0.40 0.80 Insignificant Minor Moderate Major Catastrophic 0.9 Almost Certain M 0.05 M 0.09 H 0.18 H.36 VH.072 0.7 Likely M 0.04 M 0.07 H 0.14 H 0.28 H 0.56 0.5 Possible M 0.03 M 0.05 M 0.10 H 0.20 H 0.40 0.3 Unlikely L 0.02 M 0.03 M 0.06 M 0.12 H 0.24 0.1 Rare L 0.01 L 0.01 M 0.02 M 0.04 M 0.08 Table 3: Legend
Legend Description Action Required
VH Very High Extremely high levels of risks response in planning and management
H High Possible high levels of management and attention planning
M Medium Possible moderate levels of management and planning being issued
L Low Possible low levels of management and attention being issued.
All those risks should be still tracked and managed by recording the type and nature of each risk, who is responsible for handling it and the date of handling. on the selection criteria established earlier, which in this case is quality, time, costs, risk, scope, flexibility, difficulty, price oppositions, and responsibility. Uber operates through several operational risks such Fidelity Insurance which protects the firm from an employee who might commit fraudulent activities. The firm covers all the legal expenses that might result from litigation concerning fulfillment of directors and other officers fiduciary duties.
Uber insurance is also part of the Insurance Board of Trade which helps the organization to underwrite losses from a large pool of insurance policies. These policies reflect on the deductibles as well as the maximum limits allowed for a cover. Other concerns include weather derivatives that are linked to an index whether these conditions, for instance, the average temperature precipitation for wind speed, political climates that might be affecting cars (Thoyts, 2010). These rotate around indemnified bonds as well as the debt issuer that are based on internal events, for underwriting a loss. The indexed payoffs also revolve around established insurance loss indices.
The firm also pursues an integrated risk management platform that allows assessment of the collective risks, which further reflects in implementing a firm-wide strategy of managing such risks. The risk management narrows goals and views each risk as an isolated risks management platform that is useful for nature while focusing on the possible long-term goals of the firm. In fact, the risk management approach allows department from the possible standard practice which involves viewing each risk independently, hence developing a strategy to respond to the risk. In fact, the managerial policy is designed to respond to the individual risk creating a stronger environment for containing risks. Using the integrated risk platform above, the organization manages risks by
Adjusting its capital structure
Modifying internal operations
Employing targeted financial instruments.
Calculate the solvency ratio of Uber-Insurance
Ratios and Measures Calculated Using Market Value Information
Current Ratio Dec 2016 Dec 2017
Current Assets 133,212 127,261 divided by Current Liabilities 5,015 26.56 4,471 28.46
Working Capital Current Assets 133,212 127,261 - Current Liabilities 5,015 $128,197 4,471 $122,790
Debt/Asset Ratio Jan 2017 Dec 2017
Total Farm Liabilities 5,015 4,471 divided by Total Farm Assets 3,923,410 0.13% 3,896,024 0.11%
Equity/Asset Ratio Total Firm Equity 3,918,395 3,891,553 divided by Total Firm Assets 3,923,410 99.87% 3,896,024 99.89%
Debt/Equity Ratio Total Farm Liabilities 5,015 4,471 divided by Total Farm Equity 3,918,395 0.00 3,891,553 0.00
Comparison of Solvency and Risk Strategy
Clearly, Uber is at higher risks given the firm equity is slightly below the firm assets. However, total current liabilities "total payouts" are lower as compared to the total assets, one considers that a debt to assets ratio of 0.11 is moderate enough for the financial year 2018. Clearly, at the beginning of the year, Uber-Insurance resolved to modify internal operations, which has reduced total liabilities from 5,015 to 4,471. Consequently, the debt to asset ratio declined from 0.13% to 0.11% meaning that the employed financial instruments were useful in regulating the total payouts provided between the two years. However, Uber strategy is not showing any fruits to investors given that debt to equity ratio was maintained at 0.00%. This means that the firm can be liquidated since investors are not seeing any confidence in adjusting the capital structure, targeted financial instruments as well as internal operations.
Response to Emil concerning Solvency
Dear Emil, following the summary presented above, you can easily tell that Uber-Insurance is operating in a high-risk environment and anytime, investors might decide to withdraw their funds, as they are not certain of the future. It is, however, important to acknowledge the current situation is not rigid and can be modified to meet your expectations. I would you like to focus on credit rating and supply chain systems as they hold the performance of the organization. Credit rating is the calculation of the premiums covers that the insurance should be paying, while supply chains are useful in strengthening the firm operations (Kriele and Wolf, 2014). From the Risk Appetite provided earlier, one sees that credit rating has a mild-low of 109, while supply chains have a very low of 99 of total appetite. It is important to increase the appetite level to at least 120 in both cases. This will involve strengthening the quality of the product, the efficiency of time in responding to claims, the flexibility of products, pricing of the products and responsibility to pay the cover.
Once that is done, we can choose the possible stress of the new Risk Appetite; as well analyze the influence of the solvency ratio. First, the new height of 120 for the appetite in a stable credit rating system means that the organization can use the prevailing legal bodies to avoid paying excessive premiums to covers. Uber-Insurance should strengthen its legal body to determine the valid and invalid claims. Insuring cars is the most tricky ventures, as well as passengers and drivers involved. Uber should be in a position to determine the degree of liability. In the case where only the vehicle was damaged, the organization can provide a temporary vehicle, while it repairs the vehicle instead of issuing a new one. This will prohibit clients from maliciously damaging their vehicle hoping the company will pay them a new one. In relation to strengthening the supply chain systems, Uber should hire a marketing agency that will popularize the products. In addition, the company should provide new products in the market. New products can be personal devices such as laptops, mobile phones, and home appliances. This will help market the overall product that is cars. This is expected to increase the revenue flow hence improving current assets from 127,261 to around 170,200 and above while affecting an increase in current liabilities from 4,471 to 8,721. Nonetheless, the major impact will be Debt-Asset Ratio that should increase to 3%-6%, Debt/Equity Ratio sho...
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