LEAD Reference Content:Applying Ontology to Risk Concepts - Revision history

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{{DISPLAYTITLE: Applying Ontology to Risk Concepts}}
== Abstract ==
This case story covers the concept of applying the Risk Ontology which is part of the Global University Alliance Business Ontologyi and how the principles can be applied in a complex environment of an Insurance organization. An environment where risk engineering, modelling, and architecture are applied to build a basis for a structured Way of Thinking, Working, Modelling, and Implementation of Risk concepts. It illustrates how to organize and structure the viewpoints and objects associated with Risk relations and Risk stewardship within the various processes.

=== Introduction ===
The aim of this case story is to show how Business Process Management concepts can be used across multiple aspects of a business. How it can relate risk aspects, service aspects and financial aspects to the concept of processes to manage its business and its risks. We already know from the Risk Ontology that risk relates in multiple ways to processes.

When we talk about risk in general terms we mean: <em>‘The combined impact of any conditions or events, including those caused by uncertainty, change, hazards or other factors that can affect the potential for achieving objectives.’</em>

Modelling risk has been a very challenging aspect, especially since the behavior and the relations of risk to the various aspects of the organization is very different. Below are a short abstract and example of Risk and the semantic relations to organizational entities:

Table 1: Example of Risk and the semantic relations to organizational entities

[[File:An-Introduction-to-the-Business-Ontology-Figure-1.jpg|thumb|800px|left|alt=Figure 1: Overview of the Academia Industry Design (AID) process used in the Global University Alliance and collaborative industry practitioners.|Figure 1: Overview of the Academia Industry Design (AID) process used in the Global University Alliance and collaborative industry practitioners.]]

'''Document''': [[Media:Applying Ontology to Risk concepts.pdf|Download the 'Applying Ontology to Risk Concepts' document.]]

[[Category: Business Ontology]]

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		+	Therefore, the relationships between decomposition and composition meta objects and their types that are relevant to the context are considered an essential part for any practitioner working with and around innovation and transformation across various relevant risk subjects (versus siloed modelling, engineering and architecture view). Below in figure 2 is a meta model view of the risk and how it semantically relates to various aspects of processes.

		+	[[File:Applying-Ontology-to-Risk-concepts---Figure-2.png\|thumb\|800px\|left\|alt=Figure 2: Risk Oriented Process Meta Model.\|Figure 2: Risk Oriented Process Meta Model.]]


−	~~'''Document''': [[Media:Applying Ontology~~ to ~~Risk~~ concepts~~.pdf\|Download~~ the ~~'Applying Ontology to~~ Risk ~~Concepts' document~~.]]	+	In order to apply the concepts discussed in a structured way of thinking, working and modelling throughout this case, we will:
		+	*Define the classical insurance types
		+	*Specify the different financing methods
		+	*Pin point the different reasons why the establishment of a risk management function is so difficult
		+	*Outline an Insurance Risk Map
		+	*Specify Key Insurance Processes and their risks
		+	*Identity: the insurance process areas involved.
		+	*Classify Capital Allocation and Planning Process
		+	*Identify Economic Capital Calculation Process
		+	*Categorize Investment processes
		+	*Categorize Product Design processes
		+	*Categorize ALM and Bonus setting process

		+	The lessons learned and the exciting journey of linking risk modelling aspects the necessary process centric transformation with and through IT is aimed to be described in an overview on the following pages.
		+
		+
		+	=== Introduction to the complexity of the insurance industry ===
		+	As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of any type is all about managing risk. Which is one of the reasons, we chose this (insurance) industry, to illustrate Risk-oriented modelling.
		+
		+	As you will read in the case story examples, within life insurance, the insurance company attempts to manage mortality (death) rates among its clients. The insurance company collects premiums from policy holders, invests the money (usually in low risk investments), and then reimburses this money once the person passes away or the policy matures. A person called an actuary constantly crunches demographic data to estimate the life of a person. This is why characteristics such as age/sex/smoker/etc. all affect the premium that a policy holder must pay. The greater the chance that a person will have a shorter life span than the average, the higher the premium that person will have to pay. The most common competencies involved in this are illustrated in figure 3:
		+
		+	[[File:Applying-Ontology-to-Risk-concepts---Figure-3.jpg\|thumb\|500px\|left\|alt=Figure 3: Common Life Risk Management competencies.\|Figure 3: Common Life Risk Management competencies.]]
		+
		+
		+	The competencies involved, service delivered and process created are virtually the same for every other type of insurance, including automobile, health and property.
		+	In order to better understand life insurance it is essential to provide some context about the economic need for life insurance and its reason for existence. As for all types of insurance and reinsurance, life insurance provides financial protection in case a random event happens. The risks cover death (e.g. term insurance), longevity (e.g. annuities) and also various types of health and disability. Besides these pure risk type products there are also so called savings products, where there is a saving component which allows policyholders (i.e. the customers of the insurance company) to have some savings when they retire.
		+
		+	The life insurance market offers a wide range of different policies. It is, without expert knowledge, hardly possible to differentiate between these policies. Life insurance can be understood as a bet: either one gets a benefit or one pays the premium without getting anything in return. From this point of view life insurance mathematics is a part of a probability theory. Since life insurance deals with monetary benefits and premiums, it is also part of the financial market and the economy. In this context one should note that insurances whose benefits are unit-linked, e.g. the payout depends on the performance of a fund, they actually rely on the modern theory of financial markets.
		+
		+	From a legal point of view, a life insurance is a contract between the policy-holder and the insurer. Life insurance policies are characterized by their abstract matter and their diversity. Since their content is abstract their value is not intuitively obvious. This is due to the fact that a life insurance policy is usually only bought once or twice during a lifetime. In contrast, for example, one buys a loaf of bread on a regular basis and thus one has a feeling for its correct value.
		+
		+	Life insurance - in particular an individual policy - is a long term contract. Take for example a thirty year old man who buys a permanent life insurance. Now suppose he dies when he reaches ninety, then the contract period was sixty years. Due to the long duration of the contract and the risks taken - for example changing fundamentals - it is necessary to calculate the price of insurance with care and foresight.
		+
		+
		+	=== Types of classical insurance ===
		+	*'''Insurance on life or death:''' Insurance guaranteeing a specific sum of money to a designated beneficiary upon the death of the insured, or to the insured if he or she lives beyond a certain age.
		+	*'''Liability insurance:''' The miscellaneous category. This insures property such as automobiles, property and professional/business mishaps.
		+	*'''Health insurance:''' Insurance against expenses incurred through illness of the insured.
		+
		+	An insurance on life or death the essential event is the survival of the insured person up to a certain date or death before a certain date. Furthermore, these insurance types can be classified by the causes of death which yield a payout (e.g. a life insurance which pays only in the event of accidental death). Concretely, various kinds of survivor’s pensions and pure endowments are insurances on life or death.
		+
		+	For a permanent disability insurance the essential criterion is the (dis)ability of the insured at a given date. For insurances on health, the payout depends on the health of the insured. This class of insurance contains modern types of policies, such as long-term care insurance. The latter only provides benefits if the insured is unable to meet his basic needs (e.g. he is unable to dress himself). Besides a classification based on the insured event, one can also classify the insurance based on the benefit. This can either be paid as an annuity or as a lump sum.
		+
		+	In the following section we give some typical examples of life insurances.
		+
		+	'''Pure endowment:''' A pure endowment insurance provides a payment from the insurer to the insured, if he reaches the age of maturity of the policy. Otherwise there is no payment.
		+
		+	'''Term/permanent life insurance:''' A (term/permanent) life insurance is the counterpart to a pure endowment insurance. In contrast to the latter, a life insurance does not yield a payout to the policyholder if he survives until maturity of the policy. In the popular case of a term life insurance there is no payout if the insured reaches the age of maturity of the policy. But if the insured dies before that age his heirs receive a payment. A special case is the permanent life insurance, which yields a payout to the heirs no matter how old the insured is at the time of his death. This insurance is, in some countries, very popular since it can be viewed an investment for their off-spring.
		+
		+	'''Endowment:''' The endowment insurance is the classic example of a life insurance. It is the sum of a pure endowment insurance and a term or permanent life insurance. This means that it yields a payout in the case of an early death and also in the case of reaching the fixed age of maturity.
		+
		+	'''Pension:''' A pension policy constitutes that the insurer has to pay an annuity to the insured when he reaches a certain age (age of maturity of the policy). Then the pension is paid until the death of the insured. The payment of the annuity is usually at regular intervals: monthly, quarterly or yearly. Moreover the payment can be made in advance (at the beginning of each interval) or arrears (at the end of each interval). Since the pension is only paid until death, one can additionally agree a minimum payment period. In this case the pension is paid at least for the minimum period. (This type of pension contract provides the desire of the insured to get at least something back for the premiums paid in.)
		+
		+	All these classical insurance types are, in principle, based on the assumption that the minimum interest which is earned on the fund is guaranteed and that the insurance benefits are almost fixed at inception of the contract.
		+
		+
		+	'''Document''': [[Media:Applying Ontology to Risk concepts.pdf\|Download the 'Applying Ontology to Risk Concepts' document.]]

	[[Category: Business Ontology]]		[[Category: Business Ontology]]

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		+	Table 1: Example of Risk and the semantic relations to organizational entities.

−	~~Table 1: Example of Risk and the semantic relations to organizational entities~~

		+	We do realize that not all these aspects matter in the context of a process. They are what we call secondary relationships, thereby playing a role between risk and process, but not with a primary relationship. The decomposed risk relevant meta-objects listed in table 1 can be used in risk oriented process architecture as well as in risk oriented process engineering concept, as they allow for risk and process decomposition. These fundamental risk concepts can be combined with auxiliary/secondary concepts to produce the semantic richness needed by practitioners to relate it to various relevant concepts.

−	[[File:An-~~Introduction~~-to-~~the~~-~~Business~~-~~Ontology~~-Figure-1.~~jpg~~\|thumb\|800px\|left\|alt=Figure 1: ~~Overview~~ of ~~the Academia Industry Design (AID) process used in the Global University Alliance and collaborative industry practitioners~~.\|Figure 1: ~~Overview~~ of ~~the Academia Industry Design (AID) process used in the Global University Alliance and collaborative industry practitioners~~.]]	+	These auxiliary concepts are called risk composition meta-objects and represent various risk aspects like external forces, strategy, goals, objectives, quality, reporting, timing, etc. Together the risk composition and decomposition meta-objects provide a structuring mechanism that facilitates the developments of a holistic risk ontology i.e. application ontology. For example, the link between the decomposition meta object ‘process’ and the decomposition meta-object ‘risk’ invites practitioners to think about the risks associated with each meta object they identify.
		+
		+	For example, the specific meta object can have multiple types/forms. This is illustrated in figure 1, the context of the meta object ‘Event’, can both be an attack, incident, shutdown, response or a disaster.
		+
		+	[[File:Applying-Ontology-to-Risk-concepts---Figure-1.png\|thumb\|800px\|left\|alt=Figure 1: An illustration of various forms of Events related to risk.\|Figure 1: An illustration of various forms of Events related to risk.]]

@@ Line 11: / Line 11: @@
 Modelling risk has been a very challenging aspect, especially since the behavior and the relations of risk to the various aspects of the organization is very different. Below are a short abstract and example of Risk and the semantic relations to organizational entities:
-{| class="wikitable" style="text-align: left; width: 100%;"
+{| class="wikitable" style="text-align: left; width: 60%;"
 |-
-| style="width: 40%; background: #0b98d6; color: #ffffff;" | '''Meta Objects'''
+| style="width: 20%; background: #0b98d6; color: #ffffff;" | '''Meta Objects'''
-| style="width: 40%; background: #0b98d6; color: #ffffff;" | '''Semantic Relations'''
+| style="width: 20%; background: #0b98d6; color: #ffffff;" | '''Semantic Relations'''
 | style="width: 20%; background: #0b98d6; color: #ffffff;" | '''Meta Objects'''
 |-
 | External Force & Drivers
 | trigger
 | Risk
 |}
 Table 1: Example of Risk and the semantic relations to organizational entities

@@ Line 194: / Line 194: @@
 All these classical insurance types are, in principle, based on the assumption that the minimum interest which is earned on the fund is guaranteed and that the insurance benefits are almost fixed at inception of the contract.
 '''Document''': [[Media:Applying Ontology to Risk concepts.pdf|Download the 'Applying Ontology to Risk Concepts' document.]]
 [[Category: Business Ontology]]

@@ Line 1: / Line 1: @@
 {{DISPLAYTITLE: Applying Ontology to Risk Concepts}}
-== Abstract ==
+=== Abstract ===
 This case story covers the concept of applying the Risk Ontology which is part of the Global University Alliance Business Ontologyi and how the principles can be applied in a complex environment of an Insurance organization. An environment where risk engineering, modelling, and architecture are applied to build a basis for a structured Way of Thinking, Working, Modelling, and Implementation of Risk concepts. It illustrates how to organize and structure the viewpoints and objects associated with Risk relations and Risk stewardship within the various processes.
-=== Introduction ===
+== Introduction ==
 The aim of this case story is to show how Business Process Management concepts can be used across multiple aspects of a business. How it can relate risk aspects, service aspects and financial aspects to the concept of processes to manage its business and its risks. We already know from the Risk Ontology that risk relates in multiple ways to processes.