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CSR386_9.2.09 - Pure risk involves large potential losses...

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CSR386 9.2.09 Chapter 1 – What is Risk? Defined A situation is at risk when: 1. There is greater expected loss 2. There is greater variance of outcomes Mean: The average between two possible outcomes Variability: the fluctuation in change Greater risk imposes cost Indirect Cost Direct loss often causes indirect loss Major fire in a building Loss of normal profit, extra operating expenses, loss of investment, etc Risk Manager Company’s group managing risk for all aspects of that company Major Business Risk Types Price Risk Output price risk – input price risk – commodity risk, exchange risk, interest rate risk Credit Risk Pure Risk Asset damage Legal liability Worker injury Employee benefits Major Types of Personal Risk Earnings Medical Liability Physical Financial Longevity Pure Risk vs. other Risks (generalizations
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Unformatted text preview: ) Pure risk involves large potential losses relative to the expected loss Firm specific, involves many firms Managed by insurance and derivatives Involves wealth losses to society Involves redistributions to society BUT: use the same frame to manage pure and price risk No clear distinguishing factors (in management) Risk Management Process 1. Identify risks 2. Evaluation frequency and severity 3. Choose methods of management Loss control, Loss Financing, Internal Loss reduction 4. Implementation 5. Monitoring performance Management Methods Loss Control Reduces level of risky activity Increased precautions Loss Financing Retention and self insurance Hedging Internal Risk Reduction Diversification Investments in information...
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CSR386_9.2.09 - Pure risk involves large potential losses...

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