Module: | MODULE B: RISK MANAGEMENT
Q405: Scenario: During a severe cyclone, a bank's regional branch suffers massive structural damage. Following the event, multiple employees file workers' compensation claims due to severe injuries sustained during the sudden evacuation process at the branch. Based on Basel operational risk event type definitions, consider the following statements:
1. The cost of repairing the structural damage to the branch falls under the "Damage to Physical Assets" event type.
2. The workers' compensation claims must also be booked under "Damage to Physical Assets" because they originated from the exact same natural disaster.
3. The compensation claims should be distinctly classified under the "Employment Practices and Workplace Safety" event type.
Which of the statements given above is/are correct?
2. The workers' compensation claims must also be booked under "Damage to Physical Assets" because they originated from the exact same natural disaster.
3. The compensation claims should be distinctly classified under the "Employment Practices and Workplace Safety" event type.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statement 1 is correct: Losses arising from loss or damage to physical assets from natural disasters (like a cyclone, earthquake, or flood) or other events (like terrorism or vandalism) are strictly classified under the "Damage to Physical Assets" Basel event type.
Statement 2 is incorrect: Operational risk methodology requires segmenting losses based on their specific nature, even if triggered by the same root cause.
The physical repair of the building is one loss type, but the human liability is another.
They cannot be clubbed into "Damage to Physical Assets". Statement 3 is correct: Any losses arising from acts inconsistent with employment, health, or safety laws or agreements, from payment of personal injury claims, or from diversity/discrimination events are mapped to "Employment Practices and Workplace Safety". This explicitly includes workers' compensation claims.
Therefore:
Option A is incorrect because Statement 2 is false.
Option B is correct as both Statement 1 and 3 are true.
Option C is incorrect because Statement 2 is false.
Option D is incorrect because Statement 2 is false.
Statement 2 is incorrect: Operational risk methodology requires segmenting losses based on their specific nature, even if triggered by the same root cause.
The physical repair of the building is one loss type, but the human liability is another.
They cannot be clubbed into "Damage to Physical Assets". Statement 3 is correct: Any losses arising from acts inconsistent with employment, health, or safety laws or agreements, from payment of personal injury claims, or from diversity/discrimination events are mapped to "Employment Practices and Workplace Safety". This explicitly includes workers' compensation claims.
Therefore:
Option A is incorrect because Statement 2 is false.
Option B is correct as both Statement 1 and 3 are true.
Option C is incorrect because Statement 2 is false.
Option D is incorrect because Statement 2 is false.