A new operational risk assessment technique: the CASTL method

Lukáš Štěpánek, Roman Urban and Rudolf Urban

Abstract

ABSTRACT

In the current market turbulence operational risk management is a basic function of every financial institution, including insurance companies. In a situation when principles based on prudent business activities and company solvency are malfunctioning and systematic risk is an increasing threat, a new system should be applied. This paper provides basic information on the new quantitative CASTL method, offering a practical classification and ranking of risks (risk scenarios). This dynamic model is not based on past risk data and eliminates some deficiencies of existing methods such as the risk matrix assessment model. The method presents a novel view of risk assessment not based on existing models. The new CASTL model shows with examples of insurance operational risks one of the many ways in which companies could react and prepare for dealing with asymmetric threat in the future.