24-01-2011, 04:38 PM
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Professor. George Flanigan
Chance of Loss
The Probability that an event that causes a loss will occur
Objective probability
A PRIORI Probability: Determined by deductive reasoning / Logical deductions such as in games of chance.
Empirically determined by inductive reasoning through analysis of data
Subjective probability: A personal estimate of the chance of loss. It need not coincide with objective probability and is influenced by age, sex, intelligence, education and personality.
Peril and Hazard
Peril: The cause of loss.
Hazard: A condition that creates or increases the chance of loss.
Physical hazard: Physical condition that increase the chance of loss. Examples include Icy roads, defective wiring, poorly designed intersections, and dimly lit stairways.
Moral hazard: Dishonesty or character defects in an individual that increase the chance of loss.
Morale hazard: Carelessness or indifference to a loss because of the existence of insurance.
Legal hazard: Characteristics of legal system or regulatory environment that increase the frequency or severity of loss.
Basic Categories of Risk
Pure and Speculative Risks
Pure risk: A situation in which there are only the possibilities of loss or no loss.
Speculative risk: A situation in which either profit or loss is possible.
Fundamental and Particular Risks
Fundamental risk: A risk that affects the entire economy or large number of persons / groups within the economy.
Particular risk: A risk that affects only individuals, not the entire economy / community.
Enterprise Risk
Pure
Speculative
Strategic
Operational
Functional
Major Pure Risks
Involuntary unemployment
Physical damage to home and personal property from fire, tornado, or other causes
Direct
Indirect
Legal Liability
Methods of Handling Risk
Avoidance
Loss-control
Prevention
Reduction
Retention
Active
Passive
Non insurance transfers
Contract
Hedging
Insurance
Insurance
Insurance is:
Loss sharing (Law of large numbers)
Pooling
Assessment mutual
Law of large numbers
Estimates better
Outcomes better
Adverse selection
Insurance and gambling
Requirements of Insurable Risk
Numbers
Accidental and unintentional
Determinable and measurable
Not catastrophe
Calculable
Steps In The Risk Management Process
Identifying Potential Losses
Property loss exposures
Liability loss exposures
Business income loss exposures
Human resources loss exposures
Crime loss exposures
Employee benefits loss exposures
Foreign loss exposures
Steps In The Risk Management Process
Evaluating Potential Losses
Loss frequency
Loss severity
Selecting the appropriate techniques
Risk Control
Avoidance
Loss Control
Risk Financing
Retention
Captives
Self Insurance
Non insurance transfers
Commercial Insurance.
Marketing Systems in Life Insurance
Agency building system
Non-agency building system
(uses independent agents)
Direct response system
Marketing Systems in Property and Liability Insurance
Independent agency system
Exclusive agency system
Direct writer
Direct response system
Multiple distribution systems
Group Insurance
