Ba96-M2L2Notes - UGBA 96 Module 2 Lecture 2 INSURANCE FOUR...

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UGBA 96: Module 2 Lecture 2: INSURANCE FOUR D’s Discover risks, issues Diagnose costs Develop a plan Deliver the goods o Different from insurance agents o Highly regulated industries o Insurance began state-regulated o Supreme Court sad it was responsibility of federal Government o Federal government retains responsibility but turf back to states o State regulations vary, especially auto policies LEADING CAUSES OF DEATH #1 Heart Disease, #2 Cancer, #5 Accidents for population of United States #1 accidents, #2 HIV among young adults in U.S. For ethnic groups: o African Americans and Latinos ravaged by HIV o Asian woman, highest risk is suicide RISK LINGO Perils things that cause harm (fire, guns, HIV) Hazards anything that increases frequency or severity of peril o Ex. location of property in regard to theft by robbers o Ex. pooling so homeowner’s insurance o In California, worst place of auto theft is Modesto o In California, highest homicide rate is Fresno o Central Valley has a problem because of gangs and methamphetamines Aggravating Hazards o Ex. leaving purse or hammer drill ($900) visible in car Exposure susceptibility to a loss o It’s a combination of perils and hazards RISK MANAGEMENT Risk (according to the textbook) uncertainty o Pure v. speculative risk o Speculative risk possibility of loss or gain (ex. gambling in Las Vegas) o Insurance is NOT speculative It is against CA law for insurance to be speculative o Pure risk possibility of harm Injury to body, liability can be insured Brand cannot be insured (ex. grocery store with Wolfgang Puck soup as a brand risk) Inventory losses
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o 3 rd party is liability to other people o Renter’s policy covers assets o Homeowner’s policy covers actually policy Documentation of losses o Video camera, camera to prove ownership o Best if keep receipts Calculate Risks o Frequency x Severity o Probability that a loss will occur x monetary value of loss if it does occur o Problem: How do you figure out frequency? Otherwise system called WAG —“Wild Ass Guess” o Ex. likelihood of Identity theft In Pheonix, AZ is 1 in 4 people o Need numbers or it is GIGO —“Garbage in, Garbage out” Ex. 25% chance of a car accident in the next year, average cost of accident is $2,000 o If 25%, no one will insure you o State creates pool of high risk drivers, rotating list of insurers so that the insurers have to take at least one person from the pool, no choice This is known as a pooled system o Key benefit to society: no borrowing of money Ex. 3 rd world countries government own properties, no insurance system Insurance makes home ownership possible RISK MANAGEMENT TOOL Avoid Risk: do not expose yourself to it o Ex. HIPPA (spelling?) Report name without condition or report condition without name Reduce the Risk: take action to reduce frequency or severity of risk o Ex. healthcare, 1 million records lost, tapes had pain text with private information
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