Introduction to Risk Management and Insurance, 7E - Dorfman. Chapter 1: Fundamentals and Terminology. OVERVIEW OF COURSE. INSURANCE AND RISK MANAGEMENT. TERMINOLOGY. PRINCIPLES. COMPANIES (MACRO). COMPANIES OCCUPATIONS. CONSUMERS Government. CONTRACTS & PERSONAL INSURANCE. - PowerPoint PPT Presentation
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Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Stability of familiesAids planning ability to businessesFacilitates credit transactionsAnti-monopoly deviceReduces credit costsIncreases efficiency of capital
5Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
The costs of operating the insurance mechanism Commissions Overhead of the company Exaggerated claims Intentional losses (moral) General indifference about the way we treat
our property, etc. (morale)
Does not include losses that would have occurred anyway
6Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
What is Arson?What is Arson-for-Profit?What are the costs?Who really pays for Arson?Should insurance companies be substituted for the role of public law enforcement authorities?
7Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Risk - many definitions - the term is used in a variety of ways1) To describe that there is a possibility of loss2) To identify the probability of loss3) To identify the cause of loss - peril4) To identify conditions that increase
frequency of severity of loss - hazard5) To identify the property or person exposed6) To identify the potential $ amount of loss7) To describe the variation in potential losses –
the ability to predict
11Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Degree of risk – the ability to predictNot the same thing as probability of lossLaw of large numbersCoefficient of variation = s/x = % of variation expected relative to the mean
OBJECTIVE RISK V. THE PROBABILITY OF LOSS
12Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Subjective Risk - individual’s mental attitude concerning lossPure Risk - exposure that can only result in a loss or no change (two possible outcomes)Speculative Risk - exposure that can only result in a loss, no change, or gain (three possible outcomes)
17Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Logical process used by firms and individuals to deal with exposures to loss.Involves pre-loss planning concerning the use of post-loss resources to minimize overall costs.Continuous process that identifies exposures and decides how to deal efficiently with them.Post-loss activities puts the plans into action.
18Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Houses in pool 10,000 Avg. value of each $ 80,000 Total property value $ 800 million Predicted losses = 1.5% of value $12 million Predicted Loss per house $ 1,200 Rate per $100 of value $ 1.50
20Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
Stability of familiesAids planning ability to businessesFacilitates credit transactionsAnti-monopoly deviceReduces credit costsIncreases efficiency of capital
23Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
The costs of operating the insurance mechanism Commissions Overhead of the company Exaggerated claims Intentional losses (moral) General indifference about the way we treat
our property, etc. (morale)
Does not include losses that would have occurred anyway
24Instructor’s Manual with Transparency Mastersto Accompany Introduction to Risk Management and Insurance, 7E - Dorfman
What is Arson?What is Arson-for-Profit?What are the costs?Who really pays for Arson?Should insurance companies be substituted for the role of public law enforcement authorities?