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9 Cards in this Set

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Definition of risk management

Systematic process for identification and evaluation of loss exposures for selection execution and administration of most appropriate techniques for treating such exposures




Not the same as insurnace management as risk man. provides periodic evaluation of all techniques

PRE-loss objective of risk management

Pre loss objectives


1. Economy goal - prepare for potential loss in the most economical way, analysis of the cost associated with different techniques (Most cost effective




2. Reduction of anxiety (e.g. defective product lawsuit)




3. Meeting legal and other obligation of and requirements (e.g. safety device for workers, hazardous waste disposal, consumer products label; fail -> lawsuit, reputation)

PRO-loss objective of risk management

1. Survival of the firm - resume at least partial operation after loss occurs




2. Continued operation (e.g. public utility firm)




3. Stability of earnings




4. Continued Growth - affect society( i.e. employees, suppliers, creditors, community)




5. Social responsibility

Risk Management Process

1. Identify loss exposure




2. Analyze the loss exposures




3. Select the appropriate techniques for treating the loss exposures (Risk control - avoidance, loss prevention, reduction; Risk financing - retention, non-insurance transfer, commercial insurance)




4. Implement and monitor the risk management program

Types of potential loss



a. property


b. liability


c. business income


d. Human resources


e. crime


f. employee benefit


g. foreign loss


h. reputation and public image of company

Tools for recognizing loss exposures

a. risk analysis questionnaires/checklist


b. physical inspection


c. flow chart


d. financial statements


e. historical loss data


f. change and trends

Evaluating potential losses


-concepts


-guidelines

1. concepts: loss frequency, severity




2. Guidelines for measuring severity


- Maximum possible loss (highest loss)


- Maximum probable loss (with high chance to happen)

Selecting the appropriate technique

1. Risk control


- Loss avoidance (abandon existing loss) exposure


- prevention (Reduce frequency of loss)


- reduction (Reduce severity of loss)




2. Risk financing


- retention (retain part or all of the loss, for low severity loss)


- noninsurance transfer(transfer loss to another party, e.g. contract, leases, hold harmless agreements, cooperation)


- commercial insurance (for high severity loss)




Commercial insurance


i. selection of coverage


ii. selection of insurer


iii. negotiation of terms


iv. internal communication


v. periodic review

Implementing the Program

1. Policy Statement


- Outline risk manage objectives, details about the treatment of exposures


- educate top level executives regard the risk management process


- give risk manager greater authority


- provide standards for judging the risk manager's performance




2. Cooperate with, and of other departments


- Not experts in all departments




3. Periodic reviews


- Keep relevant records (e.g. cost loss freq. severity)


- analyze changes, trends, problems (e.g. unclear procedures, non-cooperation)


- Make necessary changes