Fundamentals of Risk and Insurance
Fundamentals of Risk and Insurance
Chapter 1 The problem of risk 1. The concept of risk Risk: a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for
Chapter 1 The Problem of Risk 1. The concept of risk Risk: a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for
Peril: a cause of a loss Hazard: a condition that may create or increase the chance of a loss arising from a given peril Three categories of hazards: Physical hazards Moral hazard Morale hazard
Peril: a cause of a loss Hazard: a condition that may create or increase the chance of a loss arising from a given peril Three categories of hazards: Physical hazards Moral hazard Morale hazard
2 Classifications of risk Pure risk and speculative risk Pure risk: the situations that involve only the chance of loss or no loss Speculative risk: a situation in which there is a possibility of loss but also a possibility of gain
2. Classifications of risk Pure risk and speculative risk Pure risk: the situations that involve only the chance of loss or no loss Speculative risk: a situation in which there is a possibility of loss, but also a possibility of gain
Chapter 2 Introduction to risk management 1. Risk management Risk management is a scientific approach to dealing with pure risks by anticipating possible accidental losses and designing and implementing procedures that minimize the occurrence of loss or the financial impact of the losses that do occur
Chapter 2 Introduction to risk management 1. Risk management Risk management is a scientific approach to dealing with pure risks by anticipating possible accidental losses and designing and implementing procedures that minimize the occurrence of loss or the financial impact of the losses that do occur
2. Risk management tools Include two broad approaches: (1) Risk control focuses on minimizing the risk of loss A Risk avoidance B Risk reduction: loss prevention loss control (2) Risk financing focuses on finding funds to meet losses
2. Risk management tools Include two broad approaches: (1) Risk control focuses on minimizing the risk of loss A. Risk avoidance B. Risk reduction: loss prevention & loss control (2) Risk financing focuses on finding funds to meet losses
(2) Risk financing focuses on finding funds to meet losses A Risk retention(assumption) Intentional and unintentional B, Risk transfer Insurance, hedging Assume all risks that are not significant in relation to the company' s financial strength Insure all risks not assumed
(2) Risk financing focuses on finding funds to meet losses A. Risk retention (assumption) Intentional and unintentional B. Risk transfer Insurance, hedging Assume all risks that are not significant in relation to the company’s financial strength Insure all risks not assumed
3. Risk management process (1)Determination of objectives (2)Identification of risks (3 Evaluation of risks (4 Considering alternatives and selecting the risk treatment device (5)Implementing the decision (6) Evaluation and review
3. Risk management process (1) Determination of objectives (2) Identification of risks (3) Evaluation of risks (4) Considering alternatives and selecting the risk treatment device (5) Implementing the decision (6) Evaluation and review
Determination of objectives Post-loss objectives Pre-loss objectives Survival Economy Continuity of operations Reduction in anxiety Earning stability Meeting externally imposed obligations Continued growth Social responsibility lity Social responsibilit
Determination of objectives Post-loss objectives Pre-loss objectives Survival Economy Continuity of operations Reduction in anxiety Earning stability Meeting externally imposed obligations Continued growth Social responsibility Social responsibility
Chapter 3 The insurance device 1 The nature and functions of Insurance (1 Risk sharing and risk transfer A. Transferring or shifting risk from one individual to a group B Sharing losses, on some equitable basis, by all members of the group
Chapter 3 The insurance device 1. The nature and functions of insurance (1) Risk sharing and risk transfer A. Transferring or shifting risk from one individual to a group B. Sharing losses, on some equitable basis, by all members of the group
