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RISK MANAGEMENT AND PRINCIPLES OF INSURANCE

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Morale hazard. Pure risk and speculative risk ... Property. Personal. Life. Health. Direct. Indirect. Property. damage. Bodily. injury. Liability ... – PowerPoint PPT presentation

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Title: RISK MANAGEMENT AND PRINCIPLES OF INSURANCE


1
RISK MANAGEMENTANDPRINCIPLES OF INSURANCE
2
RISK MANAGEMENT AND INSURANCE TERMINOLOGY
  • Risk
  • Loss
  • Peril
  • Hazard
  • Physical hazard
  • Moral hazard
  • Morale hazard
  • Pure risk and speculative risk

3
THE THEORY OF RISK AND TYPES OF LOSS
Risk
Pure
Speculative
Uninsurable
Insurable
Uninsurable
Property
Personal
Liability
Propertydamage
Bodilyinjury
Life
Health
Direct
Indirect
4
PRINCIPLES OF RISK MANAGEMENT
  • Risk management
  • Insurance management
  • The risk management process
  • 1. Determine the clients objectives
  • 2. Identify risk exposures
  • 3. Evaluate risk exposures
  • 4. Construct a plan and select risk treatment
    device(s)
  • 5. Implement plan
  • 6. Monitor plan

5
THE RISK MANAGEMENT PROCESS
  • 1. Determine the clients objectives
  • Pre-loss objectives
  • Post-loss objectives

6
THE RISK MANAGEMENT PROCESS
  • 2. Identify risk exposures
  • Data-gathering
  • Sources of liability

7
THE RISK MANAGEMENT PROCESS
  • 3. Evaluate risk exposures
  • Severity - What is the potential size of the
    loss?
  • Frequency - What is the probability of the
    loss?
  • The Risk Management Matrix

Frequency
High
Low
High
avoidance, reduction
insurance
Severity
retention, reduction
Low
retention
8
THE RISK MANAGEMENT PROCESS
  • 4. Construct plan and select risk treatment
    device(s)
  • Loss/risk control
  • Risk avoidance
  • Loss prevention
  • Loss reduction
  • Loss financing
  • Risk retention
  • Risk transference - insurance

9
THE RISK MANAGEMENT PROCESS
  • 5. Implement plan
  • Choose appropriate instruments/methods
  • Contract characteristics - deductibles, limits,
    etc.
  • Choose insurer(s)
  • Financial stability
  • Longevity
  • Service
  • Cost
  • 6. Monitor plan

10
INSURANCE TERMINOLOGY
  • Insurance
  • Society, insurance, and the law of large numbers

11
INSURANCE TERMINOLOGY - continued
  • Insurance vs. gambling
  • Underwriting
  • Elements of an insurable risk

12
CHARACTERISTICS OF INSURANCE CONTRACTS
  • Enforceability
  • Offer and acceptance
  • Consideration
  • Legal object
  • Competent parties
  • Legal form
  • Distinguishing Features
  • Indemnity
  • Personal nature
  • Unilateral nature
  • Adhesion
  • Aleatory nature
  • Utmost good faith

13
THE INSURANCE CONTRACT
  • Four sections of an insurance contract
  • Declarations
  • Insuring agreement
  • Exclusions
  • Conditions
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