Risk Management Final

Front 1

Selection of RM techniques

Back 1

1. Avoid risks if possible
2. Implement appropriate loss control measures
3. Select the optimal mix of risk retention and risk transfer

Front 2

Loss Control

Back 2

anything we can do to engineer the frequency and severity of losses away

Front 3

loss control will always be used in conjunction with:

Back 3

either risk retention or risk transfer

Front 4

General guidelines for RISK RETENTION

Back 4

-Optimal for losses that have a LOW EXPECTED SEVERITY and a HIGH expected FREQUENCY

Front 5

General guidelines for RISK TRANSFER

Back 5

low expected frequency and HIGH expected severity

Front 6

When losses have both high expected frequency and high expected severity:

Back 6

likely that risk transfer, risk retention, and loss control will all need to be used in varying degrees

Front 7

Implementing Decisions: interaction between:

Back 7

1. Risk managers 2. insurance agents 3. brokers 4. insurance carriers

Front 8

best way of handling subjective risk

Back 8

adding knowledge through research, training, or education

Front 9

a risk taker may be more willing to assume even greater risks as:

Back 9

knowledge increases

Front 10

Risk retention

Back 10

involves the assumption of risk; if a loss occurs, an individual firm will pay for it out of whatever funds are available at the time

Front 11

Risk Transfer

Back 11

A risk management technique whereby one party (transferor) pays another (transferee) to assume a risk that the transferor desires to escape

Front 12

Types of Retention

Back 12

1. Planned Retention
2. Unplanned Retention
3. Funded Retention
4. Unfunded Retention

Front 13

Planned Retention

Back 13

a conscious and deliberate assumption of recognized risk

Front 14

Unplanned Retention

Back 14

The implicit assumption of risk by a firm or an individual that does not recognize that a risk is acknowledged to exist but the maximum possible loss associated with it is significantly underestimated.

Front 15

Funded Retention

Back 15

Pre-loss arrangement to ensure that money is readily available to pay for losses that occur

Front 16

unfunded Retention

Back 16

Absorbing the expense of losses as they occur, rather than making any special advance arrangements to pay for them

Front 17

Types of Funded Retention

Back 17

1. Credit
2. Reserve funds
3. Captive Insurers
4. Pools
5. Large Deductible Plans
6. Retrospective Rated Plans
7. Self-Insurance

Front 18

Captive Insurers

Back 18

a subsidiary formed to insure the risks of a parent or affiliated company

Front 19

Types of Captive Insurers

Back 19

1. Single Parent Captive (Pure Captive
2. Group Captive
3. Association Captive

Front 20

Advantages of Captive Insurers

Back 20

1. Cash Flow
2. Taxation Benefits
3. When a firm writes its insurance captive, it can write the policy exactly the way it wants

Front 21

Disadvantages of Captive Insurers

Back 21

1. Premium Taxes
2. Funding Obligations
3. Demand time and energy of the risk manager
4. Firm must have enough of a loss exposure to warrant these expenses

Front 22

Pools

Back 22

Well suited for organizations that are too small to use a captive or self-insure

Front 23

advantages of Pools

Back 23

1. Economies of Scale
2. Dividends
3. Claims and loss control expertise consolidated

Front 24

Disadvantage of Pools

Back 24

Ownership can mean additional capital outlay requirements

Front 25

Large Deductible Plans

Back 25

1. Very Straightforward
2. In exchange for a premium reduction, the insured agrees to pay for losses up to a chosen deductible level
3. Insurer may front claims pmt, then bill back the insured
4. Insurer maintains responsibility for adjusting the claims

Front 26

Retrospective Rated Plans

Back 26

Plans are one in which the premium rate is adjusted at the END of the policy period based on a portion of the insureds ACTUAL LOSSES during the policy period

Front 27

Self- Insurance

Back 27

1. way of mixing risk retention and risk transfer
2. Same statistical techniques used to select deductibles can be used in choosing a retention level for a self-insurance program
3. cash flow advantage of funds set aside in a reserve fund is an additional factor that must be considered in assessing the value of self-insurance
4. Even though firms may save money in the long run, firms may not choose it

Front 28

Conditions where self-insurance is possible and feasible

Back 28

1. have sufficient # of objects so theyre not subject to simultaneous destruction
2. objects should be similar in nature and value so calculations of probable loss will be accurate within a narrow range
3. firm must have accurate records or have access to satisfactory stats to enable it to make good estimates of expected losses
4. firm must make arrangements for administering the plan and managing the self-insurance fund
5. financial condition of the firm should be satisfactory

Front 29

when self-insurance works well

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1. losses that are fairly predictable
2. losses that are high frequency and low severity
3. losses that are paid out long after they occur, thus providing cash flow benefits
4. when insured desires control over the adjudication and closure of a claim

Front 30

Decisions regarding retention: financial resources

Back 30

total assets, total revenues, asset liquidity, cash flows, working capital, ratio of revenues to net worth, retained earnings, ratio of debt to net worth

Front 31

premature death

Back 31

occurs before the life stage where death becomes increasingly accepted by society as a part of the natural, expected order of life

Front 32

executor fund

Back 32

monies required to settle a deceased's estate. may include payment of outstanding debts, estate and inheritance taxes, and expenses to transfer assets to survivors.

Front 33

Executor

Back 33

person appointed to carry out the terms of the deceased's will

Front 34

those affected by death

Back 34

young children, surviving spouse, other surviving dependents

Front 35

Business-related Death Exposures

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Key employee- an employee who performs services that would be hard to replace if they died; or a person with ownership rights in the firm

Front 36

Why have death rates been declining

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1. advances in medical technology
2. improvements in economic states

Front 37

Mortality Tables

Back 37

express the probabilities of living and dying at various ages in a convenient format for a particular assumed population of persons. DEATH RATES IN INSURANCE MORTALITY TABLES ARE PURPOSELY OVERSTATED FOR CONSERVATIVENESS

Front 38

Human Life Value

Back 38

the sum of money that, when paid in installments of both principal and interest over the individual's remaining working life, will produce the same income as the person would have earned, after deducting assumed amount for taxes and personal maintenance expenses

Front 39

Exposure due to Loss of Health: 2 Categories

Back 39

1. Expenses that must be paid for MEDICAL CARE
2. Income that cannot be earned due to time away from work while health problems persist

Front 40

Factors contributing to the high cost of Health Care

Back 40

1. Fact that people are living longer
2. New medical Technology
3. Frequency and Severity of liability awards
4. Cost shifting

Front 41

Variation of Physicians and Surgeon Fees: medical expenses vary

Back 41

geographically, specialty of the provider, type of visit

Front 42

Long Term Care Options

Back 42

skilled nursing home care, custodial nursing homes, personal care homes, intermediate nursing home care, home health care

Front 43

Disability Loss

Back 43

when a person is unable to work because of an illness or injury

Front 44

Temporary Disabilities

Back 44

persons eventually recover and return to work

Front 45

Permanent Disabilities

Back 45

someone is expected to remain disabled until death

Front 46

Total Disability

Back 46

completely incapable of gainful employment during the time of the disability

Front 47

Partial Disability

Back 47

a decreased ability to earn a living but not a complete cessation of employment possibilities

Front 48

Causes of Disability

Back 48

1. Accident
2. Illness

Front 49

Primary Loss

Back 49

loss of income that would have been earned if a person had not become disabled.

Front 50

Sources of Income for elderly persons

Back 50

payments from employee retirement programs, federal social security benefits, part time earnings, investment income from financial assets, public assistance

Front 51

Consumerism

Back 51

the theory that an increasing consumption of goods is desirable to the economy

Front 52

Why might consumerism be a solution to our national health insurance issues?

Back 52

expand health insurance coverage, improve coverage for those with health insurance, improve access to and quality of care, control rising healthcare costs, offer universal coverage.