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Unformatted text preview: The Concept of Risk 1. Basic problem with which insurance deals 2. Insurance theorists have not been able to agree on a definition Definition of Risk
Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for. 1. Risk not subjective a state of the real world 2. Risk can exist whether or not it is perceived 3. Risk can be imagined where possibility of loss does not exist Risk Management Definition A scientific approach to dealing with Risk by anticipating possible accidental losses and designing specific programs and procedures to minimize and/or control the impact of losses. This tradition of dealing with Risk has occurred in society since time immemorial. The Risk Manager's job, in a nut shell, encompasses all risk control and risk financing activities in the organization. Risk Manager's Skill Set Most Risk Manager's can be appropriately described as MultiTalented. Their skills set include: Financial Skills Insurance Coverage Skills Behavioral Skills Legal Skills Analytical Skills Risk Manager's Chief Concern Examining possible inflows of cash to the organization Examining possible outflows of cash to the organization Most significantly, the control of "abnormal leaks" of cash from the organization Categorization of Risk Risks can initially be divided into Personal and Commercial categories Then within each category there are Pure Risk aspects For Personal Risks the Pure Risk categories include: Death, Sickness/Disability, Unemployment, Liability, Property For Commercial Risks: Liability, Property etc. Categorization Continued Beyond the former categories there is also: Fundamental and Particular Risk Static and Dynamic Risk Financial and NonFinancial Risk( image besmirchment ) Pure and Speculative Risk Risk Distinguished From Peril and Hazard Peril: the cause of loss Hazard: a condition that creates or increases the chance of loss Classifications of Hazards
Physical Moral Morale A fourth type of hazardlegal hazard should also be recognized. Many risks facing individuals and Risks of the Modern Environment organizations today were unknown a generation ago. Liability for environmental damage, discrimination in employment, sexual harassment, and violence in the workplace. Hazards of the nuclear age Terrorism -- bombings Risks related to information technology The Burden of Risk 1. Some losses will occur 2. The cost of accumulated reserves 3. Deterrent effect on capital accumulation 4. Higher cost of capital 5. Feeling of frustration and mental unrest Managing Risk
Although society and government can help alleviate the burden of some risks, there are other risks that are individual responsibilities. A systematic approach is desirable for dealing with these risks. What can we do about various risks? Which should be addressed first and what should be done about them? ...
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This note was uploaded on 04/17/2008 for the course RMI 2301 taught by Professor Bennett during the Spring '08 term at St. Johns Duplicate.
- Spring '08