WO2007014414A1

WO2007014414A1 - A risk management system and method

Info

Publication number: WO2007014414A1
Application number: PCT/AU2005/001158
Authority: WO
Inventors: Raymond John Dodd; Cyril John Pearson
Original assignee: Risk Management Corporation Limited
Priority date: 2005-08-03
Filing date: 2005-08-03
Publication date: 2007-02-08
Also published as: AU2005335098A1

Abstract

A risk management system comprising a unit holder risk analysis means which analyses risk factors relevant to insurance of a unit holder and outputs a quote for insurance for the unit holder, a unit calculator which calculates a number of units for a unit holder based on the quote, the units having a predetermined value, a pooled resource fund which stores units for each unit holder, a claims monitor means which monitors claim payments made against a unit holder and outputs a claim payment amount for the unit holder, a unit holder account means which stores an account of the value of units held by a unit holder and expenses incurred by the unit holder including expenses as a result of any claim payment attributable to the unit holder and profit sharing means including a dividend calculator which obtains data from the pooled resource fund and unit holder claims payment means and calculates a dividend for each unit holder.

Description

A RISK MANAGEMENT SYSTEM AND METHOD Field of the Invention

The present invention relates to risk management, particularly with regard to insuring against risk. Background of the Invention

The cost of traditional public liability and other general insurance cover has now reached levels which make it a major overhead to operators of many businesses. As an example operators of hotels and clubs have had significant increases in premiums because of the number of insurance events occurring which have resulted in increases in insurance premiums .

Over many years traditional insurance has been viewed as a risk financing option that serves two main business purposes. These are to allow the insured to achieve financial smoothing by minimising the impact of fluctuations caused by year to year accidental losses and to minimise the impact of catastrophic loss which may impact on the financial viability of the business . In general there has been disappointment in conventional insurance for a number of reasons . These include :

• perceptions that specific groups with good risk records are subsidising through ever increasing premiums, insurer's book of business and with it the poor risks;

• perception that the premiums paid by policy holders for non-catastrophic events is essentially a deposit towards claims and as such, this is an inefficient risk transfer vehicle;

• increasing difficulty of certain industry sectors to obtain insurance cover at all , or if obtainable , at a cost that exceeds the sector's ability to pay;

• inconsistency in premium rating across industries and insurance companies;

• the high level of deductibles charged to certain sectors irrespective of the claims record of the group ;

• lack of capacity especially in some areas of cover eg public liability;

• lack of suitable policy wording for more unusual risks;

• the existence of an unequal bargaining position between insurer and the policy holder, particularly in certain classes of business where insurance is provided on terms of "take it or level it"; • increasing claims adverse culture of many insurers and their willingness to challenge any payouts in Court by taking overly legalistic and technical interpretations of policy wordings ;

• the need for insurance companies to make a profit and to increase the investment return to their shareholder .

The present invention provides an alternative system which in its preferred form allows a collective approach to a risk management system which has the potential to provide lower insurance premiums and to deliver dividends to participants in the system.

The broad principle of the present invention will now be described with reference to the following different aspects and preferred embodiments of the present invention. A more detailed description of a preferred embodiment of the invention will follow with reference to particular advantages which may be achieved over traditional insurance methods . Summary of the Invention According to one aspect of the present invention there is provided a risk management system comprising a pooled resource fund having a plurality of units each having a predetermined value, a storage means which stores a plurality of unit holder files each with data relating to each unit holder, a unit holder risk analysis means which analyses risk factors relative to cover of a unit holder and outputs a quote for cover for the unit holder, a unit processor which calculates a number of units for a unit holder based on the quote, a unit holder account means which stores an account of the value of units held by a unit holder and expenses incurred by a unit holder as a result of any claim payment from the pooled resource fund attributable to the unit holder and a system controller which allocates units to a unit holder based on the quote if the unit holder meets minimum requirements for participation in the pooled resource fund. Preferably each unit holder comprises a risk entity being an entity that has a risk profile which can be assessed by the risk analysis means.

Preferably each unit holder must be a member of a group entity including one or more of the following: an institution, trust, business, trading entity, service providing group, professional group, association, professional association such as the United Innkeepers .

The storage means may store in each unit holder file, the number of units owned by that unit holder. Each unit holder file preferably includes data relating to the value of units held by that unit holder.

Preferably the risk management system includes a reinsurance entity which insures the unit holders for claims in excess of the mutual cover threshold. Each unit holder preferably must have a minimum risk profile with a rating below a predetermined minimum.

It is preferred that the risk analysis means outputs a quote being a cost of insurance based on the risk profile produced of the unit holder. According to one embodiment the quote may include an indication that the unit holder is not insurable in accordance with the system because the risk analysis means has determined that the risk profile of the unit holder does not meet the predetermined minimum rating. The quote may be in the form of a not insurable indication .

A larger unit holder may possess more units not because it has a higher risk profile, but because it size determines that the total insurable risk is greater than a smaller unit holder.

It is preferred that the size of the unit holding by a unit holder is directly proportional to the insurance coverage provided by the system to the unit holder.

Each unit holder file may include data relating to the value of units held by that unit holder .

The value of each unit may be the same . According to one embodiment the units include different types of units.

Different types of units may include A class or B class units etc.

Different classes of units may have different constraints regarding how they may be issued, how they may be redeemed, and any entitlements attached to them.

It is preferred that the number of units in the pooled resource fund is not fixed.

The threshold value may be determined based on total value of units in the pooled resource fund and statistical data on small claims .

A proportion of units may be reserved units reserved solely for payment of claims up to the threshold.

The reserved units may have a total value no greater than the number of unit holdings multiplied by the threshold amount.

It is preferred that the storage means comprises data processor memory.

According to one embodiment the system includes a website with a data processor including the storage means.

The data processor preferably includes the unit holder risk analysis means, the unit processor, the unit holder account means and the system controller.

According to one embodiment the pooled resource fund comprises a unit trust.

It is preferred that the unit trust has accounts for each unit holder which are accessible by the data processor to download data relating to each unit holder account to the storage means.

It is preferred that the storage means stores files for each unit holder including data relating to a unit holders current unit holding.

It is preferred that the data processor issues reminders to each unit holder each period when a cover premium is due to maintain coverage for the unit holder.

It is preferred that the quote for cover comprises a cover premium which is due for a unit holder periodically .

According to one embodiment reserve funds are invested through an investment entity which enables access to the funds at short notice to pay claims . Preferably the system controller comprises a data processor which controls operational features of the system and controls communications between the unit holder risk analysis means and the unit processor.

Preferably the pooled resource fund has a monetary value and includes reserve funds to cover claim payouts and excess funds which are used for enhancing the value of units .

Preferably bonus payments are made to unit holders of claim payouts per period and are less than the reserve funds .

It is preferred that the value of claim payments made against a unit holder is deducted from any bonus payments made to a unit holder .

According to one embodiment the value of claim payments made against a unit holder is deducted from bonus payments to all unit holders .

All unit holders may have an account stored in the storage means , which account includes one or more of the following : value of units held, claim payments made against the unit holder, claim payments made against the pooled resource fund, growth/loss in the excess funds, growth/loss in the reserve funds .

According to one embodiment each unit holder file includes data relating to each unit holder account.

The pooled resource fund preferably receives contributions from each unit holder each period.

A period may be any time period including yearly, quarterly, monthly, daily or any special event outside of a normal period.

A dividend per unit periodically dependent upon claims payments.

According to another aspect of the present invention there is provided a risk management system comprising a unit holder risk analysis means which analyses risk factors relevant to cover of a unit holder and outputs a quote for cover for the unit holder, a unit calculator which calculates a number of units for a unit holder based on the quote, the units having a predetermined value, a pooled resource fund which stores units for each unit holder, a claims monitor means which monitors claim payments made against a unit holder and outputs a claim payment amount for the unit holder, a unit holder account means which stores an account of the value of units held by a unit holder and expenses incurred by the unit holder including expenses as a result of any claim payment attributable to the unit holder and profit sharing means including a dividend calculator which obtains data from the pooled resource fund and unit holder risk analysis means and calculates a dividend for each unit held in the pooled resource fund. Preferably the risk management system includes a reinsurance cost evaluator which evaluates the cost of reinsurance and outputs a reinsurance cost.

It is preferred that the dividend calculator includes the reinsurance cost output from the reinsurance cost evaluator when calculating the dividend.

The risk management system may include an income evaluator which evaluates any income derived by investment of units held by the pooled resource fund and outputs an income .

The dividend calculator may include the income when calculating the dividend. The dividend calculator preferably calculates the dividend using the formula

_{Λ n} _ (RF + IR) - RC + AR

/iJ-J '■ — — — — — — — — — — — — ^- —

NU

Where : AD = annual dividend per unit

RF = value of retained funds IR = annual income received by the pool RC = reinsurance costs AR = value of actuarial reserve NU = total number of units in the pool

The risk management preferably includes a unit deductor which deducts a proportion of a unit holders ' units from the unit holders ' account if a claim payment is made which is attributable to a claim against the unit holder .

Preferably the risk management system includes a claim payment means which pays a claim payment to a claimant from the pooled resource fund.

The risk management system may include a self cover threshold means which stores a self insurance threshold which determines the maximum amount that the claims monitor means can pay to a claimant from the pooled resource fund.

The risk management system may refer claims above the self insurance threshold to a reinsurer.

The risk analysis means preferably provides a risk profile assessment for each unit holder.

The risk profile assessment may include data relating to cresta zones and liability factors relevant to each unit holder.

The risk profile assessment may provide a cresta zone value and/or a liability protection quote and/or a materials damage quote which may all be combined to provide the quote which is used for determining units to be allocated to a unit holder.

Preferably each period a risk profile assessment is made for each unit holder and additional units are allocated in accordance with the quote produced for the unit holder for that period.

The risk profile assessment may include a liability protection quotation file and materials damage quotation file whereby each file is used to calculate a premium for insurance protection for the unit holder. The risk profile assessment preferably stores any data relevant to the risk profile of a unit holder including one or more of the following: the size of the business , the length of membership in the pooled resource fund, future claims history, prior claims record, degree of adherence to risk management strategies.

The risk profile assessment may include a questionnaire which must be completed by a unit holder, the questionnaire having questions relating to risk factors relevant to insurance for the unit holder.

The risk management system may include a risk management strategy means including guidelines which set out procedures for minimising risk for each unit holder.

The risk management strategy means may include a compliance means for assessing the degree of compliance to the guidelines by a unit holder .

The compliance means preferably outputs a compliance rating for each unit holder .

The compliance means may set a minimum compliance rating which is required by a unit holder before units will be issued to the unit holder.

The compliance means preferably reviews each unit holder compliance rating each period to assess whether the unit holder can retain units in the pooled resource fund.

If the unit holder cannot retain units in the pooled resource fund, residual units in the unit holders account will be frozen or a proportion retrieved.

The risk management system may include unit holder pooled resource fund participation rules / which if not fulfilled by a unit holder, will result in removal of the unit holder from participating in the pooled resource fund. This may be by redemption of units.

Each unit holder may only be insured if a unit holder in the pooled resource fund pays a premium each period, the premium being in accordance with the quote.

Each unit holder may only be insured if each unit holder in the pooled resource fund complies with the pooled resource fund participation rules .

The risk management system may include an entry procedure protocol .

The protocol may be stored in an entry procedure protocol means and may include a questionnaire relating to the risk profile of the unit holder, a consent by the unit holder to comply to take remedial action to meet the rules and may also include a risk profile assessment.

The unit calculator preferably can offer part units to a unit holder.

The unit calculator preferably sets the price of each unit at a predetermined value .

According to one embodiment units are redeemed to a unit holder for non compliance with rules . According to another embodiment a compliance means sends off questionnaires periodically to each unit holder to assess the compliance rating for each unit holder .

The compliance means may issue rectification orders to a unit holder if its compliance rating is less than a minimum rating .

The compliance means preferably communicates with the risk assessment means which outputs a quote each period for each unit holder.

The risk assessment means may issue a freeze notice if the compliance means rating is below the minimum, which freeze notice signifies ceasing of its insurance cover until the compliance means rating is above the minimum.

According to another aspect of the present invention there is provided a method for insuring a group of entities comprising: providing a pooled resource fund having a plurality of units, each having a monetary value; providing an entry protocol for prospective unit holders ; providing a risk profile assessment for a prospective unit holder; calculating a cost/premium based on the risk profile assessment for the unit holder to be covered by insurance; issuing a number of units to the unit holder if the unit holder pays the premium and complies with a minimum compliance requirement; using the pooled resource fund to pay claims made against a unit holder below a threshold amount and paying a dividend to each unit holder based on distributable profit from the pooled resource fund.

It is preferred that the distributable profit is based on any one or more factors including the value of retained funds , annual income received by the pooled resource fund, reinsurance costs, value of actuarial reserve and total number of units in the pool .

A proportion of the distributable profit may be retained in the pooled resource fund.

The distributable profit may include a bonus amount dependent upon the period of time a unit holder has had units in the pooled resource fund without having a claim made against the unit holder. The method may include providing any one or more of the risk management system features recited previously. The claim monitor means preferably monitors and sends documents including questions to a unit holder receiving a claim and processes claim payments.

The claim monitor means preferably activates a claims procedure which involves a determination of whether the claims should be paid.

The claim monitor means may include a claims procedure controlled by the management entity.

The method may include debiting a unit holders account by a predetermined amount if a claim payment is made which is attributable to a claim made against the unit holder . The method may include creating a plurality of accounts, with an account for each unit holder, the account including current value of units held by a unit holder and expenses incurred and any dividend paid.

The method may include providing a risk management agreement for signing by the risk management entity and unit holder, which risk management agreement binds the unit holder to minimum compliance requirements .

The method may include assessing a unit holder for minimum compliance requirements which compliance requirements determine minimum requirements to minimise insurance risks for a unit holder . The method may include providing a system controller to manage the pooled resource fund and one or more of providing the risk profile assessment, calculating a cost/premium, providing an entry protocol, issuing a number of units, paying claims, determining the threshold amount, calculating dividends and paying dividends .

The method preferably includes setting up a trust to hold units in the pooled resource fund. According to one embodiment the risk assessment means is configured to receive data relating to a unit holder, process the data in accordance with reference data on liability protection for unit holders of the same type and to produce a liability protection quotation for the unit holder .

The risk assessment means may perform a similar function for material damage quotations utilising reference data on material damage claims for unit holders of a similar type .

Brief Description of the Drawings

A preferred embodiment of the present invention will now be described by way of example only with reference to the accompanying drawings in which :

Figure 1 shows a block diagram of a risk management system in accordance with the preferred embodiment of the present invention; and Figure 2 shows an application procedure in accordance with the risk management system shown in Figure

1.

Detailed Description of the Drawings

For convenience the invention in its preferred form will be described with reference to qualified hotel and registered club operators, who are members of the United Innkeepers .

It is to be understood however that the invention is not restricted to qualified hotel and registered club operators.

According to the preferred embodiment a mutual discretionary fund 11 is established on the basis that a group of hoteliers who run better than average hotels under the United Innkeepers Association name form a collective to reduce the risks against their business, or damage or loss to property. A management entity 12 is used to manage a number of activities including operation of the mutual discretionary fund 11. The system incorporates a web based application to operate the majority of the management entities functions. This web based application allows authorised personnel from any member of the system to access day to day functions offered by the management entity 12.

Before details of the web based application are explained in further detail, a full description will be provided of the system shown in Figure 1. Under the system the mutual discretionary fund 11 is established incorporating a unit trust 13.

The management entity 12 is established to be the trustee or responsible entity of the system and has the power to issue various classes of units in the unit trust 13 and operates the system in accordance with governance rules 35.

Preferably two classes of units will be issued, including A class units for hoteliers and B class units for operators of registered clubs . All units in the system both "A" and "B" are of equal value, i.e. $1.00 each .

Applicants for issue of units in the system must be financial members of the United Innkeepers , either as a hotelier or as a registered club, in accordance with relevant State legislation. This ensures a minimum standard for the applicant and a commonality in business activities and therefore business risks .

Before an applicant can be become a member of the system and have units issued to it, there is an application procedure which is described in more detail with reference to Figure 2.

The application procedures 14 are part of the risk management procedures controlled and implemented by the management entity 12. Details of the application procedures 14 will be described in detail later.

If it is assumed that an applicant is successful in completing all the application procedures the applicant will be issued units in accordance with a cover premium 16 it must pay. The cover premium is based on an insurance quote

17 which is produced by the management entity 12 based on data it has collected from the applicant and knowledge of expenses which need to be covered to operate the mutual discretionary fund 11.

Once the applicant has been issued units in the unit trust it is a unit holder and along with other unit holders owns all equity in the mutual discretionary fund.

Each unit holder has a unit holder file/and account 18 established which records all account data relevant to the unit holding of a unit holder.

An account calculator 19 receives all financial data relating to the unit trust and accounts of each unit holder and in accordance with pre-defined philosophies and formulae is able to maintain an account balance at any time for each unit holder .

Under the system there is a claims procedure 20 which must be followed whenever a unit holder receives a claim from a third party. If the claim procedures 20 result in a claim payment being made to the third party, the claim payment 21 is made from the mutual discretionary fund and is recorded as an expense payment 22 against the mutual discretionary fund.

The mutual discretionary fund 11 does not pay all valid insurance claims . Instead it only makes claim payments up to a threshold value determined by a threshold calculator '23. Any claims above the threshold value are referred to a reinsurance entity 24 which is responsible for reinsurance and stop loss cover for the system and its members/unit holders . Thus the claim payments which are paid from the mutual discretionary fund are capped at the threshold level . The unit holders therefore effectively insure themselves as a collective for claims made up to the threshold value . Above that the collective is insured by the reinsurance entity.

By having monies pooled together in the mutual discretionary fund the unit holders are able to share in the benefits of good risk management procedures which are employed by all unit holders . This benefit takes the form of dividends 25 being issued for income generated by monies kept within the fund which monies are in excess of monies reserved for claim payments . These monies may be invested by funds management entities 26 which are able to return fund profits to the mutual discretionary fund 11 as generated income .

Part of the system involves encouraging unit holders to employ a minimum risk management standards 28 and a compliance management process 29 which is controlled by the management entity 12. For unit holders which incur claims and resultant claim payments from the mutual discretionary fund 11, there is a penalty which manifests itself in the form of a deduction and consequential reduction in the number of units issued to the unit holder and held in the unit trust. The claim payment deductions 30 are made against a unit holders account in accordance with the mutual discretionary fund rules concerning penalties against unit holders . Details of the rights and obligations attaching to units will now be described with reference to the preferred embodiment.

Rights and obligations attaching to the "A" class and the "B" class units which are common to both classes of units may be summarised as follows:

Issue price of unit $1.00 Retention of ownership If no claim is made against the Fund in a given year, unit holder retains ongoing ownership of those units, whilst a member of the system.

A claim is made If during the year of membership, a member makes a claim for loss, and a claim is paid from the Fund, face value of units cap on 75% of the amount of the claim will be automatically forfeited. Calculation of dividends Dividends are on each unit calculated by application of the following formula:

_ΛD=(RF+ IR)-RC ₊ AR

NU

Where

AD = annual dividend per uni RF = value of retained funds IR = annual income received by the pool

RC = reinsurance costs

AR = value of actuarial reserve

NU = total number of units in the pool Registered clubs are generally non profit making organisations and are not privately owned. As a consequence , different taxation and commercial consideration is applied to the ownership of assets and operations of clubs when compared to hotels . Therefore there are some differences in the rights and obligations attaching to the "A" class and "B" class units, the major differences being: Payment of dividends

"A" class dividends are calculated on the formula stated above and applied on the performance of the "A" class pool, and are credited or capitalised to the members units . The dividends (when declared) will continue to accrue whilst the member remains a member of UIK.

If the member terminates membership of UIK, the member forfeits all rights to receive dividends accrued. Dividends are only paid to a member when the business is sold, or the member retires . A claim for payment of accrued dividends must be supported by evidence of transfer of the relevant liquor licence . "B" class dividends are calculated on the formula stated above and applied on the performance of the "B" class pool. Dividends accrue and capitalise as with the "A" class dividends , but there is never a cash payment . Club dividends are the value of their units at the end of each year . The value each year will be applied 3 years hence as a no claims bonus . Redemption of units "A" class units may only be redeemed by a member upon retirement and/or sale of business . If a member terminates membership of UIK, all units are automatically forfeited.

"B" class units may never be redeemed by a club upon termination of membership of the UIK, or upon winding up of the club, or upon a sale of its assets. Clubs winding up or resigning from UIK receive nothing. Referring now to Figure 2 a detailed explanation will now be provided of the application procedure .

Upon receipt of an inquiry or expression of interest from a potential member, a copy of a product disclosure statement (PDS) 40 is provided to that potential member together with a request for information 41 in the form of a written questionnaire 42 seeking details of the applicant's insurance claims history and details of current insurance arrangements including such thing as premium, due dates, currency, deductibles, buildings, fixtures, fittings etc. and associated documents 43.

The management entity 12 then seeks, with written permission of the potential member, in the form of a consent request 44, an insurance business report 45 from an insurance assessor.

An underwriting agent then instructs chartered loss adjustors 47 to carry out a physical risk survey as part of an insurance business report (risk profile analysis) 46 of the potential members business premises and operations and to provide a report to an established reinsurance broker which has experience and resources in the administration of the underwriting and claims handling of general insurance and other risks .

In the event that the survey report reveals any significant risks, the management entity 12 will request the member to correct any such potential risk areas through a corrective procedures request 48. Thereafter if the management entity 12 , acting on the advice of the insurance broker, is satisfied with the potential member's risk profile 32 which has been established as part of the insurance business report 45, the cost of contribution to the mutual discretionary fund is calculated by a unit calculator 33 as shown in Figure 1 and that cost is communicated to the potential member in the form of a quote 49. The quote 49 also includes a consideration of the expenses 50 for management of the mutual discretionary fund 11.

Once an offer and quote 16, 17 have been made by the management entity 12 to the potential member, the potential member must thereafter complete the application forms for issue of units in the system accompanying the PDS and forward the application form together with a payment for the number of units subscribed for (i.e. one unit for every $1.00 cost of contribution) to the management entity 12.

If the potential member does not meet the necessary requirements in order for a quote to be offered, the reasons 51 are provided to the potential member .

Once units are offered 52 and paid for, a kit 53 is sent to the new unit holder outlining obligations on the unit holder and management entity and mutual discretionary fund.

In addition to paying the required monies for the units to confirm acceptance in step 54, an agreement must also be executed by the new unit holder and the management entity. It is a preferred condition of membership that each member also maintains an electronic mail facility to allow full implementation of the web based version of the risk management system.

Becoming a unit holder in the system confers the following potential benefits and obligations: cover against business risk (e.g. liability, loss through theft, fire, storms etc.) at a discount to traditional insurance costs ; benefit of, and access to, best practice risk management intellectual property of the risk management system; opportunity to share in profits earned by investment returns on reserve funds of the mutual discretionary fund which are invested through the funds management 26; for club operators, a share of the investment return reflected in a three yearly "no claim bonus discount" on the cost of units ; and requirement that all members adhere to, and practice the risk management practices and policies enunciated in the management entities 12 risk management manual issued periodically by the management entity 12 to its member unit holders .

In its preferred form the management entity 12 has the following responsibilities.

1. Accepting applications for membership in the system. 2. Assessment of risks to be undertaken by the system from a potential member.

3. The obtaining of reinsurance, stop loss insurance cover for the mutual discretionary fund and its members .

4. Processing and payment of claims against the fund by members .

5. The investment of surplus funds received from contributions for members after payment of all administration costs and costs of reinsurance and stop loss cover.

6. The ongoing administration of the system.

7. Research and development on an ongoing basis of best practice risk management ideas and policies for the benefits of the system and the members.

8. Ongoing support for risk management practices and policies to members, through provision of a hot line support service .

Much of the responsibilities outlined above are integrated into an automated procedure involving a web based application .

With regard to the application procedure, after the assessment process outlined previously, has been completed, an invoice is issued by the management entity 12 to the member seeking payment of an application amount which payment is to acquire units in the mutual discretionary fund 11.

The payment is then used by the management entity 12 to purchase reinsurance and stop loss cover for risks, contribute to reserves and sale of the management entities ' 12 intellectual property and payment of management fees .

Units are then issued to the member on the basis of one unit for every $1.00 of application monies paid. With regard to the reinsurance and stop loss cover, reinsurance cover arranged with the reinsurer has the effect of covering all risks underwritten by the • system to the extent of all individual claims by members in excess of the threshold per claim. The self insured retention of the mutual discretionary fund 11 will cover incidents up to the reinsurance level . Reserve funds remaining with the custodian for the mutual discretionary fund (after application monies from each member have been received, less the disbursements previously outlined) are to be invested by the management entity 12 in trustee investments to allow for the accretion of the value of the reserve funds to achieve the following objections:

1. growth of the reserved funds to cover claims payments ;

2. enhancement of value of units for when hotel operator members in the future retire, and for increased no claim bonuses for club operators .

A full investment report will be issued by the management entity 12 to unit holders at the end of each financial year . Upon acceptance by the management entity 12 of an application for membership, an execution by the member of the risk management facilities agreement, the first instalment of the management entities risk management manual will be provided to the unit holder . The manual adopts and explains the best practice risk management techniques for operating hotels and club businesses .

Members of the system are required pursuant to the terms of the risk management facilities agreement, in the day to day operation of their hotel and club business, to apply and adhere to the procedures and policies set out in the manual .

Support for members is provided by the management entity 12 in regard to implementation and ongoing adherence to the practices and policies contained in the manual, i.e. a hotline service (which may be web based) for communications between the management entity 12 and its members .

Upon the acceptance of membership, each member will receive an information kit which will include : a. certificate of ownership of units in the scheme ; b . a copy of policy documents ; c . written advice on how to handle incidents/call/claim hotline; d. emergency hotline stickers; e. claim forms; f . first instalment of the manual; g . renewal procedures .

The management entity will also forward to each member on a periodic basis a newsletter outlining topical risk management issues and generally communicate with members in regard to the management of the system.

With regard to making of claims , the claim procedures 20, involve reporting all incidents of potential loss via a dedicated hotline telephone or web based service.

Any property/liability loss which is of an amount less than a threshold amount will be internally assessed by the reinsurer and subject to approval by the management entity 12 and will be paid by the mutual discretionary fund .

Claims for incidents in excess of the threshold value and which are under the reinsurance limit will be paid, subject to the claims management committee approval of the management entity 12. Property/liability claims in excess of reinsurance of liability will be paid by the stop loss insurer following assessment by the reinsurer on behalf of the management entity 12.

All finalised incidents/loss details and all correspondence pertaining to that claim will be attached to the United Innkeepers database under the relevant members/unit holders file. As a consequence of the payment of any claim to a member, units of that member to the value of 75% of the actual claim amount paid will be forfeited by that member . The funds of the system will be formally valued by a consultant actuary. This step may be performed periodically, such as every year. In the case of redemption of units by a retiring hotel operator, that operator can only redeem the balance of the fund minus the value of claims and provision for unpaid claims . As stated previously, hotel operators can only redeem units for a cash payment if the member retires or sells its business, substantiated by evidence of transfer of the liquor and associated licences .

With regard to risk minimisation procedures, a compliance management plan is prepared by the management entity 12 and the compliance plan sets out various compliance rules to ensure each unit holder maintains a minimum standard of compliance to risk management procedures. Part of the process involves preparing a risk management facility agreement which is to be signed by each unit holder at the time of acceptance of a membership application .

Each member will be entitled to the benefit of a risk management system computer program installation, which includes incident reporting instructions and procedures which are linked with a computer based controlling system managed by the management entity 12.

The system described previously with regard to Figures 1 and 2 may be implemented utilising a web based application.

The website is provided with a login area which is secured by multi level security locators for fraudulent or forced entry.

The web application has a typical login screen with a user name and password.

The website has a main menu which has the following functions , lengths and features : property damage calculator; liability protection calculator; user report; contact manager; user manager; automated systems which check every 60 seconds; operator tracker; image and document gallery; entry to a gate keepers application; live internal chat application; links to innkeepers risk website; Cresta search engine; settings panel ; and other features . As part of the risk profile, in procedure 32, a property and liability calculator captures and calculates all of an applicants/unit holders information to be used to provide a quote for insurances and as a point of reference for both the management entity 12 and customer (applicant and unit holder) . The customer can view a limited version of the quote once approved by the management entity 12. The material damage calculator is in the form of a web page or pages which solicits information pertinent to risk profiling of a customer. Thus it includes such information as an inventory of machinery, building, stock, plant, domestic contents, R. O.D., extra costs, records, profits, gross revenue, loss of rents, increased costs, burglary, plant, stock, domestic contents, tobacco, etc. In addition to this there is information provided on the Cresta zone the business is located in, the renewal date for any policy as well as information on historical data relating to insurance for the customer.

Utilising all of the above information and actuarial data, a quote is able to be provided for insurance for material damage .

A similar web page is provided for liability quotations . This of course will entail soliciting additional or different information including whether the customer has childcare/play grounds, video games, happy hours, courtesy bus services, swimming pools, car parking entertainment, security, etc.

In addition to the above the web based system may also provide access to unit holder accounts and incorporate a dividend calculator which calculates dividends in accordance with previously outlined formulae . In addition a unit processor controls all monetary calculations including the dividend calculator, account calculator, expenses, payments, insurance quotes, units calculator, funds profits, threshold level and allows communications between the different processing features of the system to allow unit holder accounts to be kept up to date .

The advantages of the system described with reference to Figures 1 and 2 can be summarised as follows :

Lower insurance costs for unit holders ; Cash flow - premiums are typically paid in advance while claims are paid out over a longer period . Until claims become payable the premium is available for investment.

Unavailability of coverage. Where the commercial market may be unable or unwilling to provide coverage for certain risks or where the price quoted is seemed to be unreasonable, the system may provide the cover required. For example liability cover currently only available offshore.

Risk Management. The system can act as a focus for the risk management and risk financing activities of its member organisation. An effective risk management program results in recognisable savings for the system. Risk management can viewed by a member not as a cost centre but as a potential saving of premiums by reduction of claims. The system only involves buying reinsurance in excess of the level appropriate to the group as a whole. This level is the threshold level set for the mutual discretionary fund.

Access to the reinsurance market. Because reinsurers operate on a lower cost structure than direct insurers they are able to provide coverage at advantageous rates . It is to be understood that, if any prior art publication is referred to herein, such reference does not constitute an admission that the publication forms a part of the common general knowledge in the art, in Australia or in any other country . In the claims which follow and in the preceding description of the invention, except where the context requires otherwise due to express language or necessary implication, the word "comprise" or variations such as "comprises" or "comprising" is used in an inclusive sense, i.e. to specify the presence of the stated features but not to preclude the presence or addition of further features in various embodiments of the invention .

Claims

1. A risk management system comprising a unit holder risk analysis means which analyses risk factors relevant to insurance of a unit holder and outputs a quote for insurance for the unit holder, a unit calculator which calculates a number of units for a unit holder based on the quote, the units having a predetermined value, a pooled resource fund which stores units for each unit holder, a claims monitor means which monitors claim payments made against a unit holder and outputs a claim payment amount for the unit holder, a unit holder account means which stores an account of the value of units held by a unit holder and expenses incurred by the unit holder including expenses as a result of any claim payment attributable to the unit holder and profit sharing means including a dividend calculator which obtains data from the pooled resource fund and unit holder claims payment means and calculates a dividend for each unit holder .

2. The risk management system as claimed in claim 1 including a reinsurance cost evaluator which evaluates the cost of reinsurance and outputs a reinsurance cost.

3. The risk management system as claimed in claim 2 wherein the dividend calculator includes the reinsurance cost output from the reinsurance cost evaluator when calculating the dividend and includes an income evaluator which evaluates any income derived by investment of units held by the pooled resource fund and outputs an income.

4. The risk management system as claimed in claim 1 wherein the dividend calculator calculates the dividend using a formula

(RF + IR) -RC + AR

/{.LJ —

NU Where :

AD = annual dividend per unit RF = value of retained funds in pooled resource fund IR = annual income received by the pooled resource fund RC = reinsurance costs

AR = value of actuarial reserve

NU = total number of units in the pooled resource fund

5. The risk management system as claimed in claim 1 including a unit deductor which deducts a proportion of a unit holders units from the unit holders account if a claim payment is made which is attributable to a claim against the unit holder.

6. The risk management system as claimed in claim 5 including a claim payment means which pays a claim payment to a claimant from the pooled resource fund.

7. The risk management system as claimed in claim 1 including a self insurance threshold means which stores a self insurance threshold which determines the maximum amount that the claims monitor means can pay to a claimant from the pooled resource fund.

8. The risk management system as claimed in claim 7 including a system controller which refers claims above the self insurance threshold to a reinsurer .

9. The risk management system as claimed in claim 1 wherein the risk analysis means provides a risk profile assessment for each unit holder.

10. The risk management system as claimed in claim 9 wherein the risk profile assessment includes data relating to cresta zones and liability factors relavant to each unit holder.

11. The risk management system as claimed in claim 10 wherein the risk profile assessment provides a cresta zone value and/or a liability protection quote and/or a materials damage quote which are used together to provide the quote which is used for determining units to be allocated to a unit holder.

12. The risk management system as claimed in claim 11 wherein each period a risk profile assessment is made for each unit holder and additional units are allocated in accordance with the quote produced for the unit holder for that period.

13. The risk management system as claimed in claim 12 wherein the risk profile assessment includes a liability protection quotation file and materials damage quotation file whereby each file is used to calculate a premium for insurance protection for the unit holder .

14. The risk management system as claimed in claim 13 wherein the risk profile assessment stores any data relevant to the risk profile of a unit holder including one or more of the following : the size of the business, the length of the membership in the pooled resource fund, future claims history, prior claims record, degree of adherence to risk management strategies .

15. The risk management system as claimed in claim 10 wherein the risk profile assessment includes a questionnaire which must be completed by a unit holder, the questionnaire having questions relating to risk factors relevant to insurance for the unit holder .

16. The risk management system as claimed in claim 1 including a risk management strategy means including guidelines which set out procedures for minimising a risk for each unit holder .

17. The risk management system as claimed in claim 16 wherein the risk management strategy means includes a compliance means for assessing the degree of compliance to the guidelines by a unit holder .

18. The risk management system as claimed in claim 17 wherein the compliance means outputs a compliance rating for each unit holder .

19. The risk management system as claimed in claim 18 wherein the compliance means sets a minimum compliance rating which is required by a unit holder before units will be issued to the unit holder.

20. The risk management system as claimed in claim 19 wherein the compliance means reviews each unit holder compliance rating each period to assess whether the unit holder can retain units in the pooled resource fund.

21. The risk management system as claimed in claim 20 wherein a compliance means sends off questionnaires periodically to each unit holder to assess the compliance rating for each unit holder .

22. The risk management means as claimed in claim 21 wherein the compliance means issues rectification orders to a unit holder if its compliance rating is less than a minimum rating .

23. The risk management system as claimed in claim 22 wherein the compliance means communicates with the risk assessment means which outputs a quote each period for each unit holder incorporating data received relating to the compliance rating .

24. A method for insuring a group of entities' comprising: providing a pooled resource fund having a plurality of units, each having a monetary value; providing an entry protocol for prospective unit holders ; providing a risk profile assessment for a prospective unit holder; calculating an insurance cost based on the risk profile assessment for the unit holder to be covered by insurance; issuing a number of units to the unit holder if the unit holder pays the insurance costs and complies with a minimum compliance requirement; using the pooled resource fund to pay claims made against a unit holder below a threshold amount and paying a dividend to each unit holder based on distributable profit from the pooled resource fund.

25. The method as claimed in claim 24 wherein units in the pooled resource fund have the same monetary value .

26. The method as claimed in claim 25 wherein a proportion of the pooled resource units are reserved for payment of claims .

27. The method as claimed in claim 26 wherein units in the pooled resource are invested to derive a distributable profit.

28. The method as claimed in claim 27 including debiting a unit holders account by a predetermined amount if a claim payment is made which is attributable to a claim made against the unit holder .

29. The method as claimed in claim 25 including creating a plurality of accounts , with an account for each unit holder, the account including current value of units held by a unit holder and expenses incurred and any dividend paid .

30. The method as claimed in claim 25 including providing a risk management agreement for signing by the risk management entity and unit holder, which risk management agreement binds the unit holder to minimum compliance requirements .

31. The method as claimed in claim 25 including setting up a trust to hold units in the pooled resource fund.

32. The method as claimed in claim 31 wherein the risk assessment means is configured to receive data relating to a unit holder, process the data in accordance with reference data on liability protection for unit holders of the same type and to produce a liability protection quotation for the unit holder.

33. A risk management system comprising a pooled resource fund having a plurality of units each having a predetermined value, a storage means which stores a plurality of unit holder files each with data relating to each unit holder, a unit holder risk analysis means which analyses risk factors relative to insurance of a unit holder and outputs a quote for insurance for the unit holder, a unit processor which calculates a number of units for a unit holder based on the quote, a unit holder account means which stores an account of the value of units held by a unit holder and expenses incurred by a unit holder as a result of any claim payment from the pooled resource fund attributable to the unit holder and a system controller which allocates units to a unit holder based on the quote if the unit holder meets minimum requirements for participation in the pooled resource fund.

34. The risk management system as claimed in claim 33 wherein each unit holder comprises a risk entity being an entity that has a risk profile that can be assessed by the risk analysis means and is a member of a group entity.

35. The risk management system as claimed in claim 33 wherein the storage means stores in each unit holder file the number of units owned by that unit holder and data relating to the value of units held by the unit holder .

36. The risk management system as claimed in claim 33 wherein each unit holder must have a minimum risk profile with a rating below a predetermined minimum.

37. The risk management system as claimed in claim 36 wherein the risk analysis means outputs a quote being the cost of insurance based on the risk profile produced of the unit holder .

38. A risk management system substantially as hereinbefore described with reference to the accompanying drawings .