List the four steps of the traditional risk management process.
1. Identify risk
2. Evaluate risk
3. Select a RM for each risk
a. Risk avoidance
b. Loss control
c. Risk retention
d. Risk transfer
4. Implement and review
Understand Evolution of Enterprise Risk Management (ERM) from Traditional Risk Management (TRM) at a very simple level.
Enterprise Risk Management - ERM - It considers all risks simultaneously and manages risk in a holistic or enterprise-wide (and risk-wide) context
Where does insurance fit into the Risk Management Process?
At the base of the financial pyramid
Understand parts of the Personal Financial Planning Pyramid.
Covers life, health , loss of income and property-liability income
Wealth distribution > wealth accumulation > risk management (protection)
Speculation: investments like futures and commodities and real estate
Growth and diversification: investments like bonds and stocks
Savings and accumulation: regular savings and ownership of your house and education
Life, health, disability , long term care, property , liability insurance
What professional exams is this course useful in preparing you for?
Chartered Property Casualty Underwriter (CPCU) exams
Associate in Risk Management (ARM) exams
Certified Financial Planner (CFP) exams
Chartered Life Underwriter (CLU) exams
What is Gamma Iota Sigma (GIS)?
An international business fraternity
Promotes student interest in insurance, risk management, and actuarial science
A place for students to gain leadership experience
Prepares students for employment in the insurance and risk management professions.
Provides networking opportunities for students to meet with various insurance and risk management professionals.
Risk – uncertainty concerning loss, 2 types speculative and pure.
Understand different classes of risk: pure, speculative, subjective, objective, diversifiable, and un-diversifiable
Pure – Exists when there is uncertainty as to whether loss will occur
Two possibilities: loss or no loss.
Home and car, fire and flood risk
Speculative – Exists when there is uncertainty about an event that can produce either a profit or a loss. investment risk, reputational risk, strategic risk
Subjective – refers to the mental state of an individual who experiences doubt or worry as to the outcome of a given event
It is essentially the psychological uncertainty that arises from an individual’s mental attitude or state of mind
Objective – differs from subjective risk in the sense that it is more precisely observable and therefore measurable
Often measured as probable variation around expected loss. Diversifiable –
In general, what kinds of risk are insurable?
Pure objective risks
Risks covered: possibility that one of these perils may interrupt the individual’s income or cause medical expenses.
death accidents and sickness living too long unemployment What are the Two Main Categories of Insurable Risks?
Property can include all your land, house, apartment, contents (your stuff), car and so on.
Liability is coverage for law suits you or your property may cause to others.
When you insure your home this is how the property policy is layed out. Everything is a percentage of the dwelling or structure so what you have for a property limit on the structure affects everything else. Any you have deductibles you have to pay in a loss and the company wants you to insure close to the value and cost to rebuild that is co insurance usually about 80% or greater of the home’s cost to rebuild is required.
Coverage A - Dwelling
Coverage B – Other Structures 10% of A
Coverage C – Contents 50% to 70% of A
Coverage D – Loss of Use 10% of A
Coverage E - Liability
Coverage F – Medical payments
Property liability risk - hazards such as wet roads, oily rags or things that might lead to a peril or loss