Is a process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures?
Is any situation or circumstance in which a loss is possible, regardless of whether a loss occurs?
E.g., a plant that may be damaged by an earthquake, or an automobile that may be damaged in a collision.
A loss exposure.
New forms of risk management consider both?
Pure and speculative loss exposures.
Prepare for potential losses in the most economical way
Meet any legal obligations
Pre-Loss objectives of risk management.
Ensure survival of the firm
Minimize the effects that a loss will have on other persons and on society
Post lost objectives of risk management.
Risk Management Process?
- Identify potential losses
- Evaluate potential losses
- Select the appropriate risk management technique
- Implement and monitor the risk management program
Risk Managers have several sources of information to identify loss exposures?
- Physical inspection
- Financial statements
- Historical loss data
Refers to the probable number of losses that may occur during some given time period?
Refers to the probable size of the losses that may occur?
Loss severity is ____ important than loss frequency?
Is the worst loss that could happen to the firm during its lifetime?
The maximum possible loss.
Is the worst loss that is likely to happen?
Maximum probable loss.
Refers to techniques that reduce the frequency and severity of losses.
Methods of risk control include?
- Loss prevention
- Loss reduction
A certain loss exposure is never acquired, or an existing loss exposure is abandoned?
Refers to measures that reduce the frequency of a particular loss
e.g., installing safety features on hazardous products?
Refers to measures that reduce the severity of a loss after is occurs.
e.g., installing an automatic sprinkler system
Refers to techniques that provide for the funding of losses.
Methods of risk financing include?
- Non-insurance Transfers
- Commercial Insurance
Means that the firm retains part or all of the losses that can result from a given loss?
Retention is effectively used when?
- No other method of treatment is available
- The worst possible loss is not serious
- Losses are highly predictable
Is the dollar amount of losses that the firm will retain?
The retention level.
A risk manager has several methods for paying retained losses?
- Current net income
- Unfunded reserve
- Funded reserve
- Credit line
Losses are treated as current expenses?
Current net income.
Losses are deducted from a bookkeeping account?
Losses are deducted from a liquid fund?
Funds are borrowed to pay losses as they occur?
Is an insurer owned by a parent firm for the purpose of insuring the parent firm’s loss exposures
A captive insurer
Is owned by only one parent?
A single-parent captive.
Is an insurer owned by several parents?
An association or group captive.
Is a method other than insurance by which a pure risk and its potential financial consequences are transferred to another party?
A non-insurance transfer.
Is appropriate for loss exposures that have a low probability of loss but for which the severity of loss is high
Selects the coverages needed, and policy provisions?
The risk manager.
Is provision by which a specified amount is subtracted from the loss payment otherwise payable to the insured?
Is one in which the insurer does not participate in the loss until the actual loss exceeds the amount a firm has decided to retain?
An excess insurance policy.
Is a policy specially tailored for the firm?
Implementation of a risk management program begins with?
A risk management policy statement.
Risk management policy statement?
- Outlines the firm’s risk management objectives
- Outlines the firm’s policy on loss control
- Educates top-level executives in regard to the risk management process
- Gives the risk manager greater authority
- Provides standards for judging the risk manager’s performance
A risk management manual may be used to?
- Describe the risk management program
- Train new employees
A successful risk management program requires?
Active cooperation from other departments in the firm.
The risk management program should be periodically?
Reviewed and evaluated to determine whether the objectives are being attained.
The risk manager should compare?
The costs and benefits of all risk management activities.
The cost of risk includes?
Premiums paid, retained losses, outside risk management services, financial guarantees, internal administrative costs, taxes, fees, and other expenses.
Reduction in pure loss exposures allows a firm to?
Enact an enterprise risk management program to treat both pure and speculative loss exposures.
Refers to the identification of pure risks faced by an individual or family, and to the selection of the most appropriate technique for treating such risks?
Personal risk management.
The same principles applied to corporate risk management apply to?
Personal risk management.