RISK MGT - DIN 201 RISK MANAGEMENT AND INSURANCE CONCEPT OF...

This preview shows page 1 - 3 out of 126 pages.

DIN 201: RISK MANAGEMENT AND INSURANCE CONCEPT OF RISK What does risk mean to you? Risk is a word that has more than one meaning. It is a term that can mean different things depending on the circumstances and the context in which it is used. Here are some of the meanings it can assume. Uncertainty The primary meaning of risk as applied in risk management and insurance is that of the uncertainty of an outcome in a given situation. The key word here is “uncertainty” It is the doubt whether a given event will take place or not. The greater the doubt or uncertainty, the greater is the risk. When are you uncertain? When are you in doubt? And so when are you at risk? In this context, you can only be at risk if you face an event which may or may not occur, if there are at least two or more possible outcomes from the event, and you cannot determine in advance which one of the two or more possible outcomes you will actually experience. There is no risk, no uncertainty or doubt in a situation where there is only one possible outcome. Or where we can tell in advance which outcome shall be experienced because in such cases there will be no uncertainty or doubt about the expected outcome which is already known. Uncertainty or risk is only relevant if one of the expected possible outcomes is a loss. A risk is not significant if it cannot cause us a loss of any kind. Risk therefore has two main things to it, uncertainty of occurrence of an event and a possible loss of some kind from the event. Risk management and insurance is therefore more concerned with those risks capable of causing losses. So what is a loss? A loss is the unintentional or involuntary parting with something of value. A loss may be either financial or non financial and could involve both tangible and intangible assets. Some situations of uncertainty that could give rise to risk and loss include
Image of page 1

Subscribe to view the full document.

(a) The negligence of participants in a certain activity or the negligence of others. (b) Events that may be foreseeable or not foreseeable for now. (c) Hazards or conditions arising out of ownership or operating in premises. (d) Performing certain activities or participating in certain activities. (e) Failure to perform certain activities such as proper maintenance, inspection, supervision, controls, etc. (f) Failure to provide warnings on existing dangerous conditions. (g) Poor administrative structures. (h) Environmental factors such as political instability, socio- cultural practices, natural calamities, etc. Can you now list some specific loss causing events which could occur in the situations (a) to (h) above? Chance of loss or the probability of occurrence of a loss. We have already in the previous section defined risk as uncertainty of occurrence of an event. But the term risk can also mean something else. It can also be defined as the chance or probability of occurrence of a loss. This is the long run relative frequency of a loss. The probability or chance of occurrence of a loss varies between 0 and 1. The 0 position says there is no chance of a loss occurring. At the other end 1, the chance of loss
Image of page 2
Image of page 3
  • Spring '16
  • insurance policies

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern