21-09-2013, 04:39 PM
Insurance and Risk Management
Risk Management.ppt (Size: 602.5 KB / Downloads: 23)
What is Risk?
The chance of loss
There must be a chance of loss for risk to exist.
All transactions / Events have a liability / risk exposure
Risk Defined
Chance/possibility of loss
Uncertainty of occurrence of any unforeseen event
Variation of actual from expected results
Risk, in traditional terms, is “exposing to danger or hazard”.
The Chinese give a much better description of risk. The 1st is the symbol for “danger”, while the 2nd is the symbol for “opportunity”
Understanding Risk
Pure vs. Speculative
Dynamic vs. Static
Subjective vs. Objective
Particular vs. Fundamental
Financial vs. Nonfinancial
Peril vs. Hazard
Probability of Loss (Frequency, Severity)
Law of Large Numbers
Commercial Trade Risk
Insurable vs. Non-insurable Risk
Risk Management (RM)
Broadly defined, business RM is a method for making decisions
On going plan to avoid circumstances and events that can cause loss & Minimize the operational and financial impact of loss, should it occur
Regarding how to treat exposures to loss in business value from any source.
Economic protection of Co’s Assets, Earnings & Liabilities.
RM - Definition
“RM is the Identification, Analysis and Economic Control of those RISKS which can Threaten the Assets (Property, Human) or the Earning Capacity of an Enterprise”
Risk Types - Business
Material Risk- Building, Plant & Machinery, Furniture, Fixtures, fittings, Stocks.
Consequential Risk- Loss of production, Loss of profit, Loss of market, Good will.
Social Risk
Legal Risk- Product liability, Public liability.
Political Risk- Subsidies, Sanctions etc.
Loss Exposure
Set of circumstances that presents the possibility of loss, whether or not a loss actually occurs.
Implies the existence of something that may decline in value
The object and the circumstances can be objectively verified
The RM Process
Determining the objectives of RM program
identification and evaluation of pure loss exposures faced by an organization or individual
Identifying the risk exposure
Evaluating identified risks as to the probability of outcome and potential loss
selection and administration of the most appropriate technique for treating such exposures
RM Vs. Insurance
RM is a decision process; insurance is a financial product
RM focuses on identifying and measuring risks to select the most appropriate technique.
Insurance is one of several methods the risk manager can use to treat loss exposures.
RM provides for the periodic evaluation of all techniques for meeting losses, not just insurance.
Insurance is only one of several options to treat pure loss exposures. So RM is a broader concept